This week the President of the European Central Bank, Mario Draghi, called for a “growth compact” to complement the earlier “fiscal compact” (a non-EU treaty signed, but not yet ratified, by all member-states – not including the UK and the Czech republic – which focuses on trying to control levels of public spending). Mr Draghi’s statements are being used by Francois Hollande, the Socialist candidate in the upcoming French Presidential elections, as a sign that his ideas are gathering momentum. Hollande has been campaigning on an anti-austerity platform, including calls for project eurobonds and an expanded role for the European Investment Bank. Are we starting to see a growing push-back against austerity?

Earlier, we had a video comment sent in from Protesilaos asking whether the fiscal compact was improperly balanced, with too much emphasis on austerity measures:

Recently, we had the chance to take this comment to Hannes Swoboda, leader of the Socialists and Democrats in the European Parliament, to hear his reaction. This is one of the big issues dividing the main parties in the Parliament, so how would the leader of the largest centre-left party react?

Well, first of all, I agree with his criticism on the fiscal treaty. It’s wrong for two reasons. First, because it’s outside the normal EU procedures, with oversight from the Council and the Parliament; second, because of the very austere elements. I’ve nothing against savings. We have to save money in the public sphere. But the extreme austerity in this treaty is bad… We need deficit spending, in the long run, to reach a balanced budget.

Austerity measures won’t bring people out of the crisis. It’s like giving poison to a man or woman who is sick. If you give people lower incomes, salaries, pensions, minimum wages, etc. then they have less money to spend and less income from consumption activities. This leads to a higher deficit and higher taxes. That’s the situation in Greece right now.

Until now, all the countries who gave money to Greece have been earning money. The general impression of the public, because of politicians being dishonest, is that the bail-out money is being given to the Greek government. The truth, however, is that the bail-outs are going straight back out of the country and into the pockets of investors. The poor are paying to the rich.

Other MEPs were more guarded in their support for growth policies. We had a comment from Brutus arguing that European economic policies should focus above all on reducing unemployment, and that the “first thing to do to make Europe more competitive is to put everyone to work.” Emilie Turunen, a Green MEP from Denmark, had this to say in response:

Yes and no. I agree to the point that what we’re doing right now is not sufficient, and we’re behind the economic curve; too little, too late. That was the case with Greece, and now with growth in Europe generally. This means that we have to get the wheels going again. He’s right when he says we need to reduce unemployment and focus on growth.

On the other hand, there was a need for stricter economic governance. It was not a regime that anyone respected; Germany and France were the first to disrespect the Growth and Stability Pact. We were not really prepared for a crisis.

What about the idea of eurobonds or other such measures to tackle the crisis at the EU level? We had a comment from Michael arguing that: “If Europe has common problems then Europe has to have common solutions. A common Eurobond is one of them and many others should follow.” How would Emilie Turunen react?

More integration is highly, highly controversial and doesn’t have a lot of popular support from people right now. So the measures being implemented must be followed by a more democratic union. Elect the Commission. If we hand over powers to the EU, we need real democratic control over what happens. What we have now is undemocratic integration.

Next, we had a comment from Craig arguing the current approach is clearly not working: “The policy of half-hearted ECB/Council bailouts has thus far led to recession and concurrently lower revenue/worse debt-to-GDP ratios.” We took this comment to Nicolas Schmit, Luxembourg’s Minister of Labour and Employment, to see how he would respond.

I share Craig’s critical attitude. Indeed, the policy which has been chosen now to solve the debt crisis will not give us the expected solutions. The Spanish case is a good example: even the conservative Spanish government has not been able to go as far as recommended. The more cuts are made, the bigger the problem the debt burden becomes. We have really to develop a policy of investment, a policy of growth, taking seriously into account the problem of unemployment, especially among young people.

Some of our commenters were fiercely critical of the approach outlined by Mr Schmit. We had a comment from Marcel arguing: “My country, the Netherlands, has pension fund assets totaling 130% of GDP. For the rest of the Eurozone on average this is 20-25%. Can you see why fiscal union would be a catastrophe for us? I don’t think you’ll find more than 1% [of people would] be willing to ‘share’ around, and those are the ones who can afford it.[Amongst] the lower middle class and lower incomes, who did not profit from the Euro at all, you will find no such ‘European’ solidarity. It simply does not exist.” How would Mr Schmit respond?

The Netherlands is a good example. It shows that a country which has adopted a relatively strict budgetary policy is now heading for a deficit largely above 3% because they are really hurt by the overall economic situation. It shows clearly we live in one Europe, and solidarity is the only way to get out of the present economic mess. I fully understand that it may be difficult for people to accept that we have to finance countries that haven’t had very strict fiscal policies. It’s also clear we must have stronger rules over budgetary policies. On the other hand, if these countries really get into trouble then even those who have adopted the right policies will also be in big trouble. We have to play the solidarity card.

Many MEPs, however, are much more cautious. Olle Schmidt, a Swedish Liberal MEP, also answered Protesilaos’ question on whether the fiscal compact would be sufficient to address the crisis:

It is a part of the remedy, I would say. All the decisions we’ve been making over the last year and a half will prevent Europe from ending up in another mess like the one we’ve had for the last three years. It’s also an essential part of the solution to the current crisis, because the fiscal compact is also sending a message that money is used in a proper and responsible way. In my experience, from my own country in the Nineties, we had also a very severe crisis and we also introduced these kind of measures that would help politicians to not keep spending money, and actually building the fiscal discipline that is needed in this global world. So, I see this as a part of the remedy.

Finally, we took some questions to Anna Kinberg Batra, Parliamentary Group leader of the Swedish Moderate Party in the Swedish Parliament. Her party is a member of the centre-right European People’s Party (EPP), which counts as members many of the ruling parties in Europe right now. We gave her a comment from Andreas, who asked: “Are the bail-outs helping in any way Greece? No. Of course not. What they actually do is to merely extend the death of their economy for some more time, until they finally fall into bankruptcy… The only solution for Greece to see better days is to default and return back to drachmas.”

The long-term solution for Greece lies in the hands of the Greek public. The root of the problem is that Greek politicians had promised more than the country could deliver. In the long-term, Greece must grow and build its competitiveness. And that has to be done by the Greeks themselves. Their future inside or outside the eurozone is up to them.

What about the comment from Craig, arguing that austerity is merely leading to “recession and concurrently lower revenue/worse debt-to-GDP ratios”?

The long-term sustainable solution is competitiveness and building real worth. Greece couldn’t afford to continue building its debts forever. In the long-run, Greece has to grow through competitiveness. If you look around Europe in the world, I’m worried we’re not putting enough of an emphasis on achieving sustainable growth through competitiveness. China is rising, India is rising; Europe cannot take its position for granted. We have to compete.

What do YOU think? Is austerity leading to a vicious cycle of recession and lower economic growth, making it harder to balance the budget? Or does austerity increase confidence and so encourage economic activity? Can we spend our way out of the crisis, or have we reached the limits of what we can borrow? Let us know your thoughts and comments in the form below, and we’ll take them to policy-makers and experts for their reactions.

IMAGE CREDITS: CC / Flickr – 401k