THE lesson of the past fortnight is clear: austerity isn't working and the people have spoken.

A popular revolt against government cutbacks has left Greece without a government and facing new elections. France has elected a president committed to growth rather than deficit reduction. Spain is in a deflationary spiral of decline, which has left nearly half its young people unemployed. Ireland, which embraced austerity four years ago, is now regretting it. In Britain, the economy is flatlining even before the coalition cuts in public spending have really started to bite. Britain needs a Plan B; Europe needs a Plan B.

The problem is that cutting public spending too fast during a recession can have only one result: a further reduction in economic activity, which in turn reduces taxes and the ability of the state to pay off its existing debts.

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This is plunging the Mediterranean states into a rolling economic depression. The Greek economy has shrunk by one-fifth following the bailout conditions imposed by the IMF and the European Central Bank; Spain and Portugal are heading the same way. The German finance minister, Wolfgang Schaeuble, has suggested that Greece might have to leave the euro if it fails to keep to its "financial obligations".

We believe that this speculation is irresponsible. A Greek default will cast a shadow over the entire eurozone. Bond investors will rightly fear a domino default across Portugal, Ireland, Spain and Italy. This will in turn increase the rates they charge on the debts of these countries.

Trying to run up this down escalator could lead to catastrophe for the whole of Europe – a catastrophe that would engulf Britain, France and Germany in a new default recession.

Half of Britain's exports go to Europe, and our deficit is larger than Spain's, so we would be first in line for the second wave. Germany itself cannot remain aloof because it also needs European countries to buy its cars and technology goods.

Europe needs to be saved from itself. There must be an immediate shift to growth policies, co-ordinated by the central institutions of Europe, emulating America, where deficit financing appears to be working. A catastrophic renationalisation of Europe would lead to a global recession.

It is time to say enough is enough: if the facts change, then the policy must change.