Forex Flash: Deficits have eased in recent years via austerity – Goldman Sachs

FXstreet.com (Barcelona) - As much of the Euro area and the UK has seen weak growth in 2012, the pace and extent of fiscal consolidation have come into question. According to the Economics Research Team at Goldman Sachs, “With the fiscally weakest Euro area members covered by Troika support programs, the focus has shifted to securing government solvency in France, Italy and Spain. In these countries, further deficit reductions are required to ensure that debt-to-GDP ratios decline in the medium term. This challenge is not unique to the Euro area: fiscal balances also need to be improved over the medium term in the UK.”

In assessing the progress made in reducing deficits, we look at the relationship between the degree of austerity and actual deficit improvements. “Over the past three years, in both the large Euro area countries and in the UK, there has been a positive, but non-linear, relationship between the two. But, while deficits have been reduced, initial deficit targets have been missed and are subject to repeated upward revision.” the team adds.