And this debate is currently obscuring the consensus on the longer-term effects of consolidation. This is because the debate relates directly to policy decisions and to their short-term effects on which politicians are very strongly focused. More specifically, the debate is focusing on the appropriate pace of consolidation in the current circumstances. The discussion, therefore, is revolving around the size of the fiscal multiplier.
The larger the multiplier, the greater the negative effect consolidation has on short-term growth. In general, the size of the multiplier depends on a number of factors. It depends on the specific fiscal and economic situation of the relevant country, including the size of the export sector, the exchange rate regime, trust in fiscal sustainability and the concrete design of the consolidation measures.