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2012-10-16

IMF's mea culpa is the "biggest financial story of the year"

The "fiscal multiplier" is not the hallowed 0.5 assumed by every finance ministry in Europe. The awful evidence since the global bubble burst in 2008-2009 is that the multiplier is between 0.9 and 1.7, or even higher for EMU's crucifixion belt.

The model constructed over the long boom years -- and largely drawn from isolated cases, each able to export its way out of trouble -- is dangerously wrong in a 1930s-style excess savings crisis with much of the world is slump.

Steen Jakobsen from Saxo Bank says the IMF's mea culpa is the "biggest financial story of the year". Indeed it is. The authorities have repeated the blunders of the Great Depression, but with fewer excuses.

The IMF has now called for a change of course. The Greco-Latins should be given more time to cut their deficits.

The AAA creditor bloc should stop cutting altogether until the eurozone is off the reefs.

Ambrose Evans-Pritchard, 14 Oct 2012

It was disguised as a technical appendix, but it turned out to be an act of insurrection.
IMF has published results from a study, which show that the impact of fiscal policy on growth is higher than previously estimated.

The policy conclusion of a large fiscal multiplier is obvious: excessive austerity defeats itself. It must end.

Wolfgang Münchau, Financial Times, 14 October 2012

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