Germany's Austerity Program

Yesterday, I referenced an article on the influence of Alberto Alesina on fiscal policy in Europe and criticism by Paul Krugman and Brad DeLong.  Today, the Financial Times reports more on the shape of Germany's austerity programs ("Germany focuses on cutting spending").

Germany’s cabinet is poised this week to approve a 2011 budget as part of a four-year programme of public spending cuts meant to serve as an example to other European governments without jeopardising the country’s increasingly robust economic recovery.

Briefing papers for Wednesday’s cabinet meeting, released by Berlin on Sunday, argue that by curbing spending – rather than increasing taxes – the €80bn ($100.3bn, £66bn) savings programme would differ “fundamentally” from previous fiscal squeezes and offer “noticeable, better growth possibilities”.

The comments appeared aimed at heading off international criticism that German fiscal austerity would hit Europe’s growth prospects.

Germany’s economy is enjoying an industry-led growth spurt, with engineers rehiring workers and returning production almost to pre-crisis levels.

The stronger-than-expected growth and falls in unemployment were making it significantly easier for Germany to reduce its public sector deficit.

I continue to believe that cutting spending is a good method of encouraging long-run economic growth.  I am not convinced that there is any policy that effectively encourages short-run growth in the face of a severe financial crisis. Replace this text with...