Grudgingly, Europeans (when offered the choice) have been accepting austerity. In May, Irish voters came out in support of the fiscal compact by more than 60% to 40% in a nation-wide referendum. Last Sunday, Greeks went to the polls and (though a governing coalition has yet to be officially announced) it looks likely that a pro-bailout government will be formed. The caveat to all this, however, is that there are strong calls from political leaders in both Greece and Ireland for some form of renegotiation of the bail-out terms. Voters may be accepting austerity for now, but only with the proviso that things cannot continue like this for much longer.
German Chancellor Angela Merkel has been standing firm against the idea of renegotiation (whilst EU officials have been slightly more open). Alexis Tsipras, the young leader of the radical-left SYRIZA party, who campaigned heavily in the Greek elections against the austerity programme associated with the bailout, believes that Europe will now be forced to adopt a new approach. He told his supporters in Athens that: “The policies of austerity have been defeated. They will not be able to push forward with them either in Greece or Europe.”
Certainly, those supporting renegotiation appear to hold a stronger hand in the European Council than ever before. In France, the Socialist Party emerged as the big winner in parliamentary elections held over the weekend. With control of both the Senate and the National Assembly secured, newly-elected French President François Hollande will now have strong parliamentary backing to promote his pro-growth agenda to European leaders.
Moreover, even some of the strongest advocates of austerity are starting to waver. Last week, the British Chancellor of the Exchequer, George Osborne, unveiled a £140bn (€173bn) emergency lending scheme to try to kick-start the stagnant British economy. The package of measures includes policies to boost house building and provide small businesses with cheap loans, and is intended to steer the UK away from a potential credit crunch caused by the ongoing Eurozone crisis.
So, is it time to change strategies and renegotiate looser bail-out terms in Portugal, Ireland and Greece? Recently, we had a comment sent in from Lazaros who argued that the current approach was proving disastrous: “If we continue down this road the only thing that we’ll witness is more and more countries needing bail-outs. Portugal and Ireland are already there… Spain got it last week… Italy and Cyprus will follow in the very next weeks/months. It’s a death spiral. If we go on like this, at the end there will just not be enough money for bail-outs and the whole Eurozone will be bankrupt.“
We took this comment to Gay Mitchell, an Irish MEP for the Fine Gael party who has previously called for greater “solidarity” from the EU as recognition for Ireland’s progress. He was, however, cautious in his response to Lazaros:
What we’re trying to do with the austerity measures in different European countries is to get the GDP-to-debt ratio under control. If we don’t do this, then taxpayer money will continue to be used to service national debt instead of being invested in growing the economy. In Ireland, we struggled with high public debt in the 1980s, and it took us several years to start to grapple with the problem. However, we pruned the rosebush, and it started to grow again.
Having said that, it’s not enough to bring public finances under control. We have an opportunity to invest in growth. The problem is, the EU doesn’t have the money do to this, so we have to get member-states to do it. In Germany and elsewhere, people are understandably cautious about this approach. So we have to carry public opinion in those countries.
Still, if anybody thinks you can bail-out Greece by simply transferring tax payers money, they are completely mistaken. Take Latvia: after the crisis they cut pay there by almost 30 per cent. The Latvian Prime Minister was elected based on his promise to implement tough austerity measures, and it paid off. Unemployment has gone down in Latvia. So, we shouldn’t despair too much, but nor should we seek a magic bullet.
What do YOU think? Are the bail-out terms too strict in Portugal, Greece and Ireland? Is it time to renegotiate? Or would renegotiation make it seem that Europe isn’t serious about cutting its deficits? Let us know your thoughts and comments in the form below, and we’ll take them to policy-makers and experts for their reactions.