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Moderation of fiscal tightening changes debate

Austerity has been the defining issue of the post-recession world in advanced economies. The merits of public deficit reduction divided opinion in 2010 and still do.

It is too much to expect a consensus on fiscal management to emerge in 2014, but the issue will probably not have the power to polarise of the past four years. Optimism that the debate over public finances might lose some of its venom comes from a global stalemate last year.

Supporters of austerity took a severe knock in April when a core prop to their arguments was shown to be error-strewn. Whether the mistakes were sufficient to invalidate the conclusions was irrelevant to the fact that the advice from professors Carmen Reinhart and Kenneth Rogoff, that economic growth rates fell once public debt rose above 90 per cent of national income, could no longer be used to convince policy makers or the public of the need for deficit reduction.

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