The mood has turned against austerity in the euro zone because it is now rightly seen as anti-growth. The question is what next. Here I will hazard a few predictions of where euro zone policy is headed.
Let's use the framework I set out when framing the political economy of the European sovereign debt crisis last summer. I think the main social psychology component of this framing was in talking about how policy adapts when policy makers have publicly committed to one that is ill-suited for the economic circumstances. I spoke a bit about policy inertia in the context of wanting to provide some modicum of consistency. This is part of what supports any status quo. But as the policy starts to visibly fail, the questioning of the status quo increases and the status quo becomes unstable.
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.