World economy may see seven lean years: German finance minister

German Finance Minister Wolfgang Schaeuble said the global economy may see "seven lean years" as a result of needed fiscal consolidation programmes, even as top US economists questioned the effectiveness of austerity measures. In a speech at a meeting of Nobel laureates at the University of St. Gallen in Switzerland, Schaeuble said it may take years for austerity measures to bear fruit.
"There might well be seven lean years ahead for the world economy," Schaeuble said, pointing to a "trade off between short term-pain and long-term gain". The Finance Minister underlined the need for closer co-operation on economic policy in Europe to secure long-term growth. "But for this to happen, immediate fiscal consolidation and structural reforms in Italy, Spain, Portugal and Greece are of the essence," he said. Earlier in the week Schaeuble had met French counterpart Francois Baroin to discuss plans for a Europe-wide tax on financial transactions as part of a bilateral drive for closer economic co-ordination between euro zone states.
Germany is prepared to lead the way with initiatives such as a financial transaction tax or a short selling ban, Schaeuble said, even if a broader consensus in favour of such measures has yet to evolve. Although the measures may take a while to implement, and Europe could only move ahead one step at a time, "the direction in which we have to go is not disputed," Schaeuble said.
Europe's strategy to fight its sovereign debt crisis with one austerity package after the next has not only led to street protests in Athens and Madrid, but has also drawn criticism from some of the brightest economists in the world. At their four-day meeting on the island of Lindau in Lake Constance, southern Germany, 17 Nobel economics laureates have discussed the causes and lessons from the 2008 financial crisis. The conference moved for its final day on Saturday across Lake Constance to St. Gallen in Switzerland.
One conclusion was that austerity measures were the wrong way to bring the global economy back to growth. "That austerity approach is an approach that has been tried over and over again," Joseph Stiglitz, 2001 economic science Nobel laureate, said at a conference referring to the great depression in the United States in 1929, the Argentinian and the East Asian crises.