Europe is on the road to recession. Austerity is contractionary in nature. Governments need to use cut tax and stimulus in order to avoid the economy going into recession or might be zero growth in Europe. Tax hike and stimulus cuts may not be able to revive the economic growth.Austerity measures such as tax hikes and public-sector layoffs imposed in debt-ridden southern European countries may be going overboard. Countries such as Greece have agreed to undertake tough austerity measures in exchange for aid or investor turnout at bond auctions, although layoffs and tax hikes designed to streamline the public sector and ease debt burdens mean less tax revenues down the road.
Less people working means less money coming back in for the government. Plus, a small government means less economic output as well meaning lower GDP growth, less income, lower purchasing power and decrease in living standards of people. Every government in Europe with the exception of Germany is bending over backwards to prove to the market that they won’t hesitate to do what it takes. They are going straight into a wall with this kind of policy. It’s sheer madness. Europe is heading for recession. "Europe is likely to have a meaningful recession in 2012.
While U.S. businesses may not be directly exposed to problems in Europe, protests stemming from austerity measures could spark worries in U.S. capital markets. US might be hit as well.
Powerful street protests could bring it back to the front pages. I have seen episodic crises in Europe over the past two years. It's a recurring event. Greece, Spain, Italy must prepare for another tough year that includes sticking with austerity measures. A very difficult year is ahead of Europe. It must continue the efforts with decisiveness, to stay in the euro, to make sure some countries do not waste the sacrifices and do not turn the crisis into an uncontrolled and disastrous bankruptcy
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.