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What is the Effect of Germany’s Austerity?

February 23, 2011

The New York Times today ran an article about “Why Budget Cuts Won’t Bring Prosperity.”  The article relied heavily on the German economy’s recovery in 2010 as an example of how reducing government spending has slowed down economic growth.  It does appear that the German economy is slowing down, as Eurostat has reported, it is true that the German economy has slowed down in the last six months after record growth during the second quarter.  However, as the below chart shows, unemployment has not picked up while GDP has slowed.

As a result, it is less than clear how the German government’s decision to “turn off the faucet” has caused its economy to slow.  The Indiana University European Union Center will be examining this question in its “European Responses to the Economic Crisis:  Lessons for the US” conference.   This conference will be on April 8 in Bloomington and will bring together experts from across the US to examine this issue and why it matters to policy makers.  For more information, visit the conferences website.

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