Fresh global pact targeting growth required after IMF admits it underestimated the damage austerity would cause in EU

The International Monetary Fund's belated admission that it significantly underestimated the damage that austerity would cause to European Union growth rates highlights the self-defeating character of "orthodox" recipes to address the causes of the debt crisis that followed the financial crash of 2008-09.

Conventional theory suggests that a single country (or group of countries) consolidating its finances can expect lower interest rates, a weaker currency and an improved trade position. But since this cannot happen for all major economies simultaneously - one country's (or group of countries') austerity implies less demand for other countries' products - such policies eventually lead to beggar-thy-neighbor situations. Indeed, it was this dynamic that made the Great Depression of the 1930s so grim - and against which John Maynard Keynes fought.