austerityThis 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

20 comments Post a commentcomment

  1. avatar
    Samo Košmrlj

    Austerity (atleast the way the government here in slovenia wants to implement it) is going to destroy us. First and foremost because the governments are trying to save the situation in short term and they are destroying the future by doing so. Cutting benefits for young mothers/families, cutting education, science and technology investments, lowering taxes for the rich, which is supposed to be “creating new jobs”, which translated from neoliberal language means “creating modern slaves with low wages and unsafe work”.

    What we need is to step together, the whole EU, and set our economy for sustainable, intelligent economy which will be fair to everyone and will give everyone a chance for a decent life, worth living.
    Think about it, there is at the moment a huge mass of young educated people leaving eu every day. The grey haired politicians probably dont care about it, because the effect of this will show slowly, when they will not be in the office anymore. However, we, the people should be very concerned about it or in 20 years eu will be a banana state (not that it isnt already, the spineless eu caring about those stupid u.s. controlled “analytic” institutions like a dog cares about its master’s orders.

  2. avatar
    MandyandPj Leneghan

    We have clearly reached the point where the current economic model can no longer pretend to work for the 99% of the population. Even if there is a total surrender to this mafia controlled system, the only way is down. It is way past time to rethink the ideology of the fundamentalists, the extremists, this terrorist capitalist system. In fact, it is way past time to initiate a war on capitalist terrorism. If this economic model cannot work for the people, then it is this economic model that needs to change to suit the people and NOT the people changing to serve the mafia class….pj

  3. avatar
    Caterina Zadra Nonsolotrekking

    I think about an ethical economy, in order to increase the benefits of the european population and not increase capital for few people (politicians, banker or war business, etc) … I need to know that my sons will grow in a better and equal world than this.

  4. avatar
    Hasan Ozdemir

    Hello. Austrity is not good for any economies how in crisis at all, therefore it is not a true way for Europe now. But the quantity of money you spending is not an important, actually it is muh more important what how and where spending your money. İf money spend for competitiveness , it will be useful and profit everybody or every economies. Best wishes,

  5. avatar
    Albert Saxén

    D. and, shldnt make the ppl pay.

    We have the same prob in finland the last recession’s bill was footed by banks’s families. and young ones who took out a heavy loan

    As for taxing rich .. i favor a flat tax.
    As i say in my bk “the flat tax and workfare go hand in hand, promoting work. And my version of it; use the flat tax to fund universal access, but
    access, to
    education(the one offered by the state, free of charge), UHCoverage
    and the savings generated from cutting bureaucratic costs to save
    social security with.”
    The argument you put forth, Samo, it cld as easily be applied to workfare. Which is not. however, the real joke ..running one employment and re education provided by admin services.

    Sad that they dnt. (care). That is why they /you shld get into polt in the first place.
    ever heard of the Anglo-American Alliance?

  6. avatar
    Albert Saxén

    We cannot afford to destroy an entire generation of homebuilders
    As for paying debt .. w debt..
    Well, self explanatory, isn’t it.

  7. avatar
    Pedro Pereira

    Austeridade, austerity, austrit, austeridad, austert, ???????????, em nome de um modelo errado!

  8. avatar
    Christos Mouzeviris

    recently i was in an economic forum and the Baltic states were praised again for their efforts back in the ’90s… When I visited Estonia recently, i spoke with some natives over there and they told me “whoever can leave Estonia, leaves.” many Estonians left their country to migrate to countries with higher wages. notably Finland and other northern richer European countries…so while the boat is plain sailing and Estonia is doing great according the economists, the sailors are abandoning the ship to find jobs elsewhere.. so think again..what good is the austerity imposed on us, if it attracts investment and growth as it certainly did for Estonia, but the salaries are so low that people prefer to migrate than stay… i am just saying..

  9. avatar
    Vicente Silva Tavares

    All European countries have a deficit! Why? Because it has open its borders to affluent countries like China, India or Brazil with very low custom tariffs while they charge very high tariffs. EU demands high standards on production of goods and environment requests. On the other hand it allows the import of goods from countries that they do not follow any of our standards, on labour, sanitation, environment etc. It is an unfair trade where only the big corporations profit. Little by little, Europeans will loose their jobs, will accept to lower their wages, until we will be in the same level of Asian and South American countries which will grow a little bit up. This is the world of globalism, the world of big corporations, and, the politicians do their requests because when they retire, the big corporations give them jobs of “board directors”.

  10. avatar
    Gerry Mavris

    As the former Bundesbank head says – There should be greater transfer of wealth – human resources , industrial resources, commercial resources, military resources and financial resources – from richer parts of the eurozone to poorer parts within the European Union Federation we call the Eurozone so it can operate effectively. The Euro in its current flawed form needs to be refined so an effective equilibrium can be found to cater to all members of the Euro-zone Federation, similar to how the U.S economic and monetary union system works in the United States, where there is a effective monetary transfer union from the richer U.S States to the poorer U.S States. This is EXACTLY what British Governments for decades have rejected, and is the reason why Greece and other Euro-zone countries are struggling and suffering within this flawed Euro-zone Federation. Britain is completely responsible for this economic stress in Greece, Spain, Portugal, Ireland and Italy. The flawed Euro-zone Federation has suited French and German business interests, but not the EU interest. France and Germany should stop hiding behind the British Euro-sceptic stance in the interest of European Union, endorsing the transformation of the Euro-zone currency area into a Euro-zone economic and political federation through the Enhanced Co-Operation Mechanism which is available within the EU treaties , which was also used to overcome British objection to the creation of the Euro currency, so the Euro-zone can acquire all the necessary mechanisms and functions which are required for an effective system of monetary, economic, and political governance for the Euro-zone. France and Germany lead the Euro-zone refinement for the Euro NOW.

  11. avatar
    catherine benning

    Austerity is all about making the upper rich percent of the population richer. It is a means to further push the ordinary working man into poverty in order to reduce his ability to lift himself, with aspiration for a better life. In orther words austerity reduces the income levels of the working classes to the point of indentured servant. Whilst those at the very top of the tree get richer than they have ever been.

    And a european who knows exctly what is happening here.

    And its getting worse. The austerity measures are not working, except for those very wealthy fat guys at the top.

    Now here is couple of little eye openers just to get all this in perspective.

    And a last look at it in real terms.

    However, to get a true perpective, who didn’t know that when you have an economic pie and it is carved up to give a standard pay off you have contentment. When you interfere with that carve up, to the extent we see now, how could you not know the poor would become working slaves as the pie doesn’t get bigger, all that happens is the divide is unbalanced. It repeats over and over again. In the UK it was at a peak in the 1800’s and exploitation was rife. starvation at his highest.

    So, if the basic intelleligence of the ordinary man knows this, and it is so obvious to all, how is it those leaders we have in Europe don’t know this?

    Have you ever thought of the IQ of those who rule us, and if they are fit for purpose?

    If they are asking us to comment on a well know economic fact, and they have not absorbed the gist of what they are putting to us in all this time, what are they doing in those jobs? They are, in fact, proven by this to be unfit for purpose.

    They can’t see the forest for the trees.

  12. avatar
    Vassilis Agopian

    Hoping that the eminent election of Hollande in France will probably lead the changes within the e.u. and bring some evolution in the economies of poorest countries of the South.

  13. avatar

    The €urozone is a bunch of countries with very diverse business/economic cultures and historical as well as social conditions. It is this and not overspending in general which caused the current crisis. Just take Japan as an example. Its debts are 200 per cent of GDP (Greece ~160 %) and still financial markets reward it with very low interest rates (in contrast to Greece). Interest rates and debt rates do not automatically correlate.
    The problem is that the diverse business/economic cultures which are the real cause for the crisis can not be made more coherent by macro economic/political interventions as attempted by the EU power holders but only by recognizing the diversity and different paths of development. Ther is no “€-zone We”. Hence, the only way out is to let the €urozone shrink to its optimal size which is the pre 1999 DM Zone plus countries like Finland and a few from the new member states in the east. Until this has not happened all pondering about growth or austerity will be in vaine. The strength of Europe will not be fostered by an artificial unity but by intelligent coordination of diversity.

  14. avatar
    Carla Oliveira

    Im portuguese and i have the conscience the country is like that because people start to spend more then they should and the several governements start to give lot of advantages and spent more then they should so now we are pay the price, is hard we felt that everyday more and more but need to be like that, any way , in my opinion i think portuguese will can get out of these crises we are fighters .

  15. avatar
    Joe Smutka

    Why listen to these anti-austerity zombies! They majored in the humanities, think math is for nerds, scorn the rich while living off mommy and daddy’s trust fund, fall victim to every perpetual motion gimmick Krugman advocates and ….absolutely never discipline their spoiled children.

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