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Is Greece Really a Better Fiscal Steward Than Germany and the United States?


The IMF rates the US as one of the least prudent countries in the wake of our many fiscal crises.

But the countries to be really worried about, they suggest, are France and Japan. Unlike other advanced economies with high debt loads, which have had bursts or even long periods of prudence in the last half-century, those two have consistently failed to reduce deficits in the face of increasing debt. Pakistan, too, stands out as a country on a long binge of profligacy, supporting the anxiety of those who have been nervous about a potential default in recent years.

But the conflicts between some of the results of this research and the events in the real world suggest that a better understanding of what to do about big debt loads is needed.

The issue is timing; fiscal consolidation to reduce debt can be an economically healthy move, but it needs to be supported by other sources of growth to avoid recession. Ireland and Greece both have high fiscal prudence scores because they adopted austerity policies, but neither is seeing much prosperity return to their shores, largely because their participation in Europe's currency union restricts their access to monetary stimulus and exports. Meanwhile, the US and Japan have high debt and low prudence scores, but both countries will see more economic growth in the years to come-unless they run into the catastrophic debt crises some are predicting.

A big experiment in the coming years is what the advanced economies will do about their debt loads. The US seems intent on a steady path of fiscal consolidation; France is slowly and reluctantly coming to the same conclusion; while Japan's new prime minister is taking an altogether bolder path to jump-start his country's economy with a barrage of spending supported by a generous central bank.

Depending on the results of these decisions-and the austerity experiments in Greece and the United Kingdom-we'll have a better idea of what prudent really means.

This story by Tim Fernholz originally appeared on Quartz.

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