That is a thoughtful & interesting piece, thank you for bringing it to my attention.My only real complaint about it is that not all "austerity" is equal. It also seems that "austerity" means different things to different people. I think digging into the details of each government's policy is key to understanding the effects. The value added of Prof. Smaghi's piece is to once again draw our attention to the old saw: yesterday's solutions are today's problems.
The concept of austerity is not applicable to a government who always has a infinite buyer for its debt. They have no need to restrain their use of resources if all that consumption of resources is settled by a medium that is infinite. End the debt ceiling...and end taxation. The gov can issue debt annually in any quantity, and the fed can buy it in any quantity, and a citizenry are not even needed. The following year, the gov can remit a small "austerity" inspired interest portion back to its only debt buyer, and issue an equal amount of debt in the new year for the same quantity plus an amount it knows the upcoming interest payment to be. It can work forever as long as the gov knows its infinite buyers required interest in advance.