Fiscal and Monetary Policy in Optimal and Non-optimal Currency Areas: The Discussion between Austerity and Countercyclical Policy

From 2010 there is a wide debate in the academic field on the topic of economic policy. Supporters of contractionary policies have had the political power to apply them absolutely in Europe. According to supporters of this current the problem is not the current deficiency in demand but on trust referring to the confidence of financial investors, confidence that will be regain through fiscal responsibility, which means, cut in public spending and punctual payment of the public debt. It doesńt matter that the investors represent less than 5% of total population and austerity affects more than 95% of people. The results that we will see in this paper clearly show the failure of austerity measures and, therefore, surprises the persistence of its promoters defending them and even worse, keeping them operating.