What are possible outcomes of a mistimed contractionary fiscal policy?

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thanatassa | College Teacher | (Level 1) Distinguished Educator

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One of the major worries of contractionary fiscal policies is that they may throw countries back into recession. This has been one of the most hotly debated issues concerning the ongoing Euro-zone crisis. The southern European countries of Italy, Spain, Greece, and Portugal all have problems of unsustainable national debt and thus burdensome interest payments. The fiscal austerity recommended by Germany and other Northern European countries, it is argues, especially by M. Hollande, runs the risk of causing a cycle of lost jobs and lost tax revenues which will prevent the needed economic recovery.