“Cutting back willy-nilly on high-return investments just to make the picture of the deficit look better is really foolish”, - Stiglitz told Dublin-based RTE Radio.
National governments of EU member states have taken certain actions to cut their budget deficits down to 3% of GDP (this marker was officially set in Europe after the debt crisis in Greece which seriously undermined investors’ confidence). Despite the fact that European GDP demonstrated rapid growth – highest in the last four years – there are now many signs of its slowdown.
“Because so many in Europe are focusing on the 3 percent artificial number, which has no reality and is just looking at one side of a balance sheet, Europe is at risk of going into a double-dip”, - Stiglitz said.
In August, business activity in Europe’s industrial and service sectors slowed down by more than it was expected, while investors’ confidence in the economy of Germany (which is one of the largest in the EU) is at the lowest level for the last 16 months. Moody’s also issued its estimations of Europe’s growth rates.
“The problem is that we aren’t getting out of this current crisis very quickly”, - he said. - “What we’re doing is setting ourselves for a lon
ger-term Japanese-style malaise of weak growth for an extended period of time. It’s very disturbing that people are talking about a new normal” with unemployment as high as 10 percent “which would be devastating”, he added.
The European Commission expects to see total budget deficit of all member states at 6.6% of GDP at the end of 2010 vs. 6.3% of GDP in 2009. Ireland has the largest deficit – 14.3%, followed by Greece with 13.6%.
Stiglitz also mentioned as a very disturbing fact that people started to treat unemployment at 10% as normal. He thinks this may have devastating consequences.
