4. Deleveraging and austerity


“The defining features of the VILE decade will continue to be deleveraging and austerity. These constraints are balanced by ultralow interest rates and expansionary monetary policy. History shows that after a major financial crash, there is a prolonged period of deleveraging that leads to weak and volatile growth. Deleveraging is still a major factor, but the improvement in financial conditions over the past few months in the UK and Europe will lessen the pace of deleveraging. Initially the deterioration in the European economy will not be as acute as previously expected. And better financial conditions in the UK will lead to faster growth in the first half of the year. Fiscal austerity is part of the deleveraging trend, and its impact depends on the mix between revenue and spending as well as deleveraging in the rest of the economy.”

Next: Deficit reprofiling in Europe