Euro area: Fiscal tightening is unlikely to kill growth

- "The debt crisis has accelerated fiscal tightening in the euro area. If the tightening is accelerated too much, it will kill growth."
- "We have estimated the impact of the tightening that has already been put forward. This is projected to dampen euro area growth by 1.0 percentage points in 2011."
- "The debt crisis has also resulted in significant euro weakening. This counters the negative impact of the fiscal tightening as it improves euro area competitiveness."
- "Euro weakening is estimated to lift euro area growth in 2011 by 0.8 percentage points. The net effect of fiscal tightening and euro depreciation on growth is modest."
- "The most open economies should benefit the most from the euro weakening while the negative impact of the debt crisis has been most felt in southern Europe."
- "The negative impact from fiscal tightening is also countered by a positive growth contribution from interest rates, which due to the debt crisis are expected to stay low for longer."
- "The overall effect of the debt crisis might however be somewhat more negative as the crisis has increased uncertainty and resulted in tighter credit conditions, affecting weaker countries and institutions most."
DenDanske Research Euroland 20100628