Here's the view from across the pond
Euroland's debt strategy is an economic and moral disgrace
The International Monetary Fund has demolished the intellectual foundations of Europe's debt crisis strategy.
Drastic fiscal tightening in a string of interlinked countries does two to three times more damage than assumed, especially if there is no offsetting monetary stimulus.
Pushed beyond the therapeutic dose, it is self-defeating. At a certain point it becomes pain for pain's sake.
The error has long been obvious in Greece. The EU-IMF Troika originally said the economy would rebound quickly, growing 1.1pc in 2011, and 2.1pc in 2012, and on from there to sunlit uplands.
In fact, Greek GDP contracted by 4.5pc in 2010, 6.9pc in 2011, and is expected to shrink a further 6pc this year, and 4pc next year. If the Troika were a doctor, it would face manslaughter charges.
The IMF now admits -- or rather those in the IMF who always feared this outcome are at last able to say -- that this misjudgement goes far beyond Greece. Tightening by 1pc of GDP in rich countries does not lead to a 0.5pc loss of output over two years as thought.
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.
....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.....
"Reducing public debt is incredibly difficult without growth," said the IMF's Christine Lagarde. "Instead of frontloading heavily, it is sometimes better to have a bit more time."
What seems to be happening is not that they share the Euro, one country can't devalue its currency and increase its exports like they used to do and this might have changed the multiplier effect.