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Portugal, the next front in the eurocrisis

April 9th, 2013 · No Comments

Austerity is likely to be recessionary and self-defeating, when a number of conditions are met. (a) Monetary policy is at the zero lower bound, and cannot compensate the recessionary effects of budget cuts with interest rate reductions. (b) Trading partners are also in a slump (and/or they are also implementing austerity measures), and hence exports can not substitute for decreased domestic demand. © The private sector is deleveraging, and subject to a credit crunch. This is pretty much a description of the current situation in the eurozone. via Portugal, the next front in the eurocrisis.

Tags: Eurocrisis