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Olli Rehn responded to US economist Paul Krugman and others who argue that Brussels should encourage debt-burdened countries to stimulate economic growth rather than cut spending further. The controversy turned personal last month when the European Commission published forecasts showing the recession in southern European countries applying tough austerity policies would be deeper and last longer than previously projected. Krugman accused the Commissioner for Economic and Monetary Affairs of a "Rehn of Terror" for arguing that EU countries' budget consolidation policies had restored market confidence.
Rehn said Krugman and other critics had distorted the findings of an International Monetary Fund study published last year on so-called "fiscal multipliers" and the consequences of austerity policies to attack European policies.
Responding to those who argued for a slower pace of fiscal consolidation to ease the pain on citizens, Rehn said that might have been possible if unlimited cheap funding had been available from either the private sector or other eurozone countries. "What I don't understand is where on earth the stimulus money could have come from", he said, adding: "I sincerely hope that people who are cleverer than me will suggest alternative ways of getting credit flowing into Europe".
Krugman blog, 22/2/13 © New York Times