Italy’s Leader Unveils Radical Austerity Measures

The Prime Minister of Italy revealed yesterday new fiscal austerity measures that attempt to radically decrease the government deficit and increase long-term growth. Radical measures that would not be stomached in America, like closing of tax loopholes, increases in tax rates, and an increase in the retirement age, are being taken to help fix the ailing economy. Impressively, the Italian Prime Minister is claiming that these measures are needed because it is not the fault of the Eurozone, but Italy itself that has caused the current economic turmoil.

Although I am impressed by the Prime Minister's conviction in enacting these potentially unpopular measures, I am concerned about the short-term effect that this will enact. Cutting spending and raising taxes and retirement age may help in the long-run, but with the current state of the economy, it may not be the best option. It will cause a significant decrease in short-term aggregate demand, which at the moment may not be worth the benefit to the economy in the long-run.