The eurozone’s double-dip recession is entirely self-made

This month the eurozone returned to recession, three years after it emerged from the deep recession of 2008-09. Paul De Grauwe argues that the current situation has been produced by policy failures at the beginning of the crisis. The best initial policy would have been for the eurozone’s creditor countries to increase spending, while the struggling periphery countries implemented austerity measures. The budget-balancing policies of creditor countries have instead created an asymmetric adjustment process in which most of the adjustment has been carried by debtor countries such as Spain, Greece and Ireland. One mechanism for returning the eurozone to growth may be for states such as Germany, Finland and the Netherlands to maintain small budget deficits while keeping a constant debt to GDP ratio.