Danger If Europe Abandons Austerity Now

BRUSSELS – Europe seems to be obsessed with austerity. Country after country is being forced by either the financial markets or the European Union to start cutting its public-sector deficit. And, as if this were not enough, 25 of the 27 EU member states have just agreed on a new treaty (called a “fiscal compact”) that would oblige them never to have a cyclically adjusted budget deficit of more than 0.5% of GDP. (For comparison, the United States’ budget deficit in 2011 was close to 8% of GDP).