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Euro-zone set for years of austerity-lite

After years of fiscal largesse, austerity is back. We suspect that budget cuts will reduce euro-zone GDP growth by only around 0.1 or 0.2 percentage points per year over the next five years. But the EU’s budget rules will require some countries to tighten more than others, most notably Italy. This will weigh on their growth more significantly and risks provoking an anti-EU backlash.

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