Seen from this angle, the prevailing situation in the euro area – but also in other industrial countries such as the United States and Japan – might lead one to assume that there is a broad consensus in favour of rapidly and resolutely reducing budgetary deficits. Yet critics raise a number of objections to these arguments.
For example, capital investment responds in a predictable way to the rate of growth of the economy, expected profitability, and the cost of capital. Similarly, housing activity, with some qualifications, moves inversely with mortgage rates. And the largest component of final demand, personal consumption expenditures, generally follows income over time.