A major global banking group said on Monday that excessive spending cuts across the euro area are dragging the region’s economy down and called for more spending by countries like Germany.
The Institute of International Finance, which played a central role in the restructuring of Greece’s debt, also assailed a eurozone firewall — designed to stop market contagion — as still inadequate and called for it to be expanded as soon as possible.
“The emphasis so far on fiscal austerity, while to a degree necessary for the countries facing market funding difficulties, is excessive when carried out across the board,” IIF chief Charles Dallara said in a letter addressed to the International Monetary Fund and the World Bank.
The tighter spending by eurozone governments “has already contributed to a steep contraction in domestic demand in the euro area as a whole,” Dallara said.
“It is important to move beyond just fiscal discipline, shift the policy focus from nominal to structural budget balances,” he said.
Instead, Dallara said, government fiscal policies should be differentiated between weaker eurozone members and those with surpluses and fiscal flexibility “so as to avoid the risk of an austerity overload.”