http://www.ft.com/cms/s/0/f414f524-fbcd-11df-b79a-00144feab49a.html#ixzz16mTfuwGRThere is only a relatively narrow range of conditions in which adoption of all-out austerity is needed to make the difference between solvency and default or bail-out. Debt must be high enough that immediate cuts cannot be deferred, but low enough that sharp cuts will enable the balance sheet to be restored without a bail-out or default.The failure of austerity policies to restore market confidence, as they were supposed to do, reflects this inherent logic. For most countries, austerity policies are likely to prove unsustainable, either because they do not deliver a sufficient improvement in the budget balance, or because they are a politically and socially costly diversion from the task of achieving long term fiscal sustainability.The risk premiums paid by heavily indebted governments seeking to issue debt look likely to remain high as long as austerity is the main policy option. Austerity policies, and the zombie ideas that support them, are bound to fail. No-one yet knows what will replace them.
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