The fiscal hawks should be pleased. For all the hand-wringing about public profligacy, budget deficits across the rich world fell by about 1% of gdp last year. Moreover, that was almost all the result of policy actions (spending cuts and tax rises) rather than cyclical effects. Germany, France, Spain and Italy all managed to reduce their structural budget deficits, the latter three thanks to austerity. All are expected to reduce those deficits further this year, the International Monetary Fund said on January 24th. But this may not be good news. Austerity can unnerve markets, not calm them.
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