I am arguing in favor of austerity measures in Europe in the New York Time’s Room for Debate. My main point is that most European countries have no choice but to put in place austerity measures because if they don’t, the capital market will shut off for them, with all that means in terms of very high interest rates and no access to capital.
In addition, whether the Keynesian economists like it or not, spending cuts are good for the economy. Read this for instance:
Let’s not forget that austerity measures are beneficial beyond the signal to investors. Based on a sample of 44 large fiscal adjustments since 1975, the Goldman Sachs economists Ben Broadbent and Kevin Daly have shown that cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth. Lower spending reduces the fear of higher taxes, which in turn, leads to an increase in consumer and business demand and economic growth.
The whole thing is here, along with the other participants’ contributions to the debate.