growth vs austerity

Last year’s debate between Paul Krugman, the renowned Nobel-prize-winning American economist, and little Estonia produced plenty of drama.

Now, it’s going to be an opera. 

Economic growth of 3 per cent in the eurozone? It sounds like a statistical error at a time when the common currency area is braced for a 0.4 per cent drop. But Estonia is set to record a 3 per cent expansion in 2012, nearly double the government’s forecast at the start of the year. And officials expect another 3 per cent in 2013.

Much of this is a rebound from the extra-severe shock that passed through Estonia and the other two Baltic states of Latvia and Lithuania in 2009 when Estonian GDP dropped by a cumulative 18 per cent. 

Polish President Bronislaw Komorowski (R) with Czech counterpart Vaclav Klaus

If the IMF wants hard proof that its previous focus on austerity was a mistake, all it has to do is take a look at central Europe’s two leading economies – Poland and the Czech Republic. 

But will he blow the IMF's trumpet?

While eurozone policy makers thrash out the growth vs austerity debate, the evidence from Romania seems to be that the traditional medicine works.

The IMF has given Romania a qualified thumbs up on it’s economic reforms and recovery. However, the Fund may have praised Romania’s progress, but it still warned of substantial downside risks and that reform still has a long way to go.