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"Economic growth is likely to be weak for some time. The path of fiscal consolidation should be gradual with a multiyear phase-in of reforms", Geithner said. "If every time economic growth disappoints, governments are forced to cut spending or raise taxes immediately to make up for the impact of weaker growth on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity", he said.
The worst-hit eurozone countries – Greece, Ireland, Italy, Portugal and Spain – have taken steps to reduce their budget deficits and impose reforms to make their economies more competitive. The UK has also announced huge budget cuts. "Fiscal reforms are only part of the solution. The harder challenge is to address the erosion in competitiveness and restore reasonable rates of economic growth."
Geithner warned that eurozone policymakers would have to be "careful to calibrate the mix of financial support and the pace of fiscal consolidation. "The reforms will take time and they will not work without financial support that enables governments to borrow at affordable rates and keeps the overall rates of interest across the economy at levels that won't kill growth."