The drum beat for austerity gets louder

Sun Nov 13, 2011 5:33pm EST
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By Jason Lange

WASHINGTON (Reuters) - Much of the developed world is charging ahead with austerity plans that will drag on the world economy next year, with bond market vigilantes beating the drum for ever-more belt tightening.

Data on Tuesday is seen showing the euro zone economy grew a modest 0.2 percent in the third quarter, although European policymakers warn the region could soon slip into recession.

Credit is tightening for parts of the region as it struggles to contain a sovereign debt crisis that has already forced Greece, Portugal and Ireland into bailouts. Now, even relatively strong economies like France are pushing new measures to rein in spending.

"Fiscal austerity winds are blowing," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "This is going to act to slow down growth."

Global economic expansion will likely cool to 3.2 percent in 2012 from 3.9 percent this year, according to a recent projection by the Conference Board, a private U.S. firm.

That outlook could darken considerably if Europe's travails worsen.

Italy, the latest country in the market's cross-hairs, faces a key test of investor confidence on Monday with a government bond auction, following austerity measures agreed by lawmakers.

But even if investor confidence in Italy improves, attention will merely shift to other rich nations that are up to their ears in debt.   Continued...