Investment and confidence can help Europe out of the crisis

Background paper written by Signe Hansen for the Conference: Delay in promoting growth and confidence as an alternative to austerity, will be very costly, both economically and politically

Europe is expected to go into recession this year, clarifying that the European recovery is still far from being self-sustaining, and that there is still a need for government intervention to get the European economy back on track. Despite the fact that austerity is dominating European fiscal policy these years, European countries entered the crisis with different starting points, which means that not all public finances in the European countries are equally badly hit today. A modest fiscal stimulus in the 6 European countries with the largest fiscal room to maneu- ver can act as a kind of a catalyst boosting consumption and investment. Assuming that the confidence spreads to all Europe, lowering interest rates in especially southern Europe, close to 2.5 million jobs can be created in Europe in 2013. And not only the countries investing will experience higher growth and employment, but also countries like Spain, Italy, Portugal and Greece will experience significant increases in GDP and employment.