European governments should reduce taxes and increase salaries to support economic growth, rather than insist on austerity and spending cuts, consider economist Nouriel Roubini. In Germany, the government should provide incentives for citizens to spend their holidays in southern countries affected by crisis, helping their recovery, Roubini said in an interview with Bild, quoted by CNBC.
Some leaders of European states have already changed the rhetoric from austerity to growth because the tax increases and government spending cuts have exacerbated economic difficulties, resulting in a severe recession in the euro area countries. Germany still insists on austerity measures as a means to bring under control budget deficits of EU countries.
“The madness austerity must be stopped. Governments should reduce taxes and increase wages. Europe needs growth. Government in Berlin should give every family in Germany a travel voucher for 1,000 euros. The voucher should, however, be used to travel only to countries affected by crisis. In addition, anyone who buys a holiday home in southern countries should get tax deductions,” said Roubini. Stopping the funding for Greece, which has already received two packages of foreign aid would lead to a collapse of the euro area, Roubini warned.
The euro area has two options for Greece: to finance an orderly exit from the monetary union of the country or to maintain the Greek State in the euro area through financial transfers like the one provided by West Germany to East Germany after unification in 1990. According to Roubini, the second option would be cheaper in the long term for German taxpayers.
Also, the European Central Bank should massively supplement the amount of euro on the market to depreciate the currency, ideally at parity with the U.S. dollar, giving Greece, Spain and Italy the chance to become competitive again. Politically, the EU heads of state must submit a 5 to 10-year plan with the purpose for Europe to have a unified banking system, with a central regulator.
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