Europe: Retreat from austerity

 
European Union Commissioner for Economic and Monetary Affairs Olli Rehn (L) and European Union Commission President Jose Manuel Barroso Both Olli Rehn and Jose Manuel Barroso at the EU Commission have expressed doubts over the future of austerity

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Like the arrival of a new season, all the signs are that Europe is in retreat from austerity.

The retreat is disguised, but cannot be concealed. The President of the European Commission, Jose Manuel Barroso, said: "While I think 'austerity' is fundamentally right, I think it has reached its limit." He implied that a policy can only be pursued if it has "a minimum of political and social support".

There is not a general recanting yet, but the explanations are flying thick and fast as to why the policy that Europe has embraced for the past three years must change.

Start Quote

Austerity is neither effective nor socially viable”

End Quote Hannes Swoboda Leader of Socialists and Democrats in European Parliament

The EU's Economics Commissioner, Olli Rehn, said: "A period of reduced spending and borrowing was necessary to calm markets concerned about out-of-control debt levels, particularly in peripheral European countries. That time has passed."

The policy of austerity first - authored in Berlin - never had a consensus behind it, but it now lies widely discredited. The French government does not believe in it. President Francois Hollande said only recently that "sticking with austerity would condemn Europe not just to recession but an explosion".

Only last week, in an editorial, the New York Times said: "All evidence shows that this bitter medicine is killing the patient."

Some of the critics of the austerity first policy are in full cry. Hannes Swoboda, president of the Socialists and Democrats (S&D) group in the European Parliament, said that "five years into the crisis, Commission President Barroso has finally recognised the reality: austerity is neither effective nor socially viable".

Serious doubts

Many German officials insist, with some evidence, that reducing deficits and spending has been key to calming the crisis and preventing the break-up of the eurozone.

Even so, in an effort to reduce deficits and make southern Europe more competitive, countries have been reducing demand, even at a time of recession.

The result is what the Greek prime minister acknowledged was "Europe's Great Depression". Greece has seen its economy shrink by 25% in five years. Spain's recession is three times deeper than forecast. The IMF predicts its economy will shrink 1.6% this year. Its general unemployment level is at 27%.

Kenneth Rogoff Research by Harvard professor Kenneth Rogoff has been used as a rationale for austerity measures

As the New York Times pointed out, Portugal cut its fiscal deficit by a third between 2010 and 2012 and saw unemployment rise to 18%. Across Portugal, the Republic of Ireland, Greece, Italy, Spain and Cyprus the best educated are on the move, seeking work beyond their own countries.

The policy is partly changing because its intellectual underpinning has been challenged.

Two economists - Carmen Reinhart and Kenneth Rogoff - were two of the gurus behind European austerity. Their basic thesis was that when debt rose above 90% of GDP, growth would decline sharply. Olli Rehn, for one, spoke of "the 90% rule".

Now there are serious doubts about the accuracy of that thesis. It is also being asked why European officials were determined to bring deficits below 3%. In many instances the deficit targets seemed arbitrary. The IMF is not alone in acknowledging it underestimated the impact of spending cuts on growth.

So the austerity believers are in retreat. Ireland and Portugal have been granted seven more years to meet their targets. Spain is likely to miss its target for reducing its deficit. Indeed, it had the biggest public deficit in the EU last year. Increasingly it looks as if it will get more time. Perhaps two more years. Suddenly targets are being eased and relaxed.

For what Europe's leaders and officials fear more now is unemployment, recession, and growing disillusionment with the eurozone that seems unable to deliver. Reducing debt is no longer the priority.

But the question remains - could the devastation of the economies of southern Europe have been avoided, or has that been the price of preserving the eurozone?

 
Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    0

    Comment number 56.

    53 Ovalball

    'I now see it is the last government we need to hold to account
    Not the current one'

    Absolutely.

    'Letting them get on with making a monumental mess of things'

    The main mistake the current government did was to not, in June 2010, cut public sector salaries by 25%. Although, in fairness, that is what Brown should have done in 2007/8.

  • rate this
    +1

    Comment number 55.

    To be an EU politician it must be a prerequisite to be shortsighted, dumb or both. These geniuses only noticed that austerity is harmful after it has smacked them in the head.

    Brilliant Barroso dug Portugal into the ground and has now done the same with the EU. Worst part is this guy and the rest of his gang are unaccountable so the damage will continue.

  • rate this
    -2

    Comment number 54.

    51 QueerEZ

    'pay back what they have taken from people in their failed and ignorant experiment'

    Yeah. Just let these countries run up even bigger debts with no hope or indeed intention of paying them off. That'll work.

    What could possibly go wrong?

  • rate this
    +1

    Comment number 53.

    Silly me what a fool I am

    I now see it is the last government we need to hold to account
    Not the current one

    Letting them get on with making a monumental mess of things

    And then hold them to account when the get kicked out

    Yes that all makes sense now

  • rate this
    +1

    Comment number 52.

    There has been too much cravenness towards "markets" that, from my observation, are worse than a sewing circle in full swing! Chinese whispers, gossip, innuendo - and we trust these people with our economic wealth?

  • rate this
    0

    Comment number 51.

    Will the TROIKA pay back what they have taken from people in their failed and ignorant experiment or will they do as the Germans, disclaim responsibility? They must be held accountable, especially as they used strong-arm tactics and blackmail. The youth of these countries should ask for justice. The unemployed should ask for these people to be sacked and sentenced in court. Causers of suicides!!

  • rate this
    +2

    Comment number 50.

    My Parents & Grand-Parents fought the Hun, repelled the Nazi invasion of GB... Then egoBlair kowtowed to Brussels to try to bribe his way into the EU Presidency and in the process he allowed a different kind of invasion force to begin the colonisation of UK. Now these EU duffers say Retreat from Austerity while the UK is effectively pawned to debt. Unbelievable! Thanks to epic fools Blair & Brown!

  • rate this
    0

    Comment number 49.

    Yet another example of politicians being led by the nose by so-called experts. "Austerity" has only allowed banksters to rip off economies and convince idiot politicians they are creating growth. Most people know fairy stories when they hear them. Now we need proper jobs manufacturing things and actually giving a damn about how we live.

  • rate this
    +1

    Comment number 48.

    Retreat from austerity just before it comes knocking on the northern EZ door. How convenient.

  • rate this
    +2

    Comment number 47.

    46. Ovalball

    'chancellor has added another £120 billon to the nation debt '

    Yeah. Amateur. He should have borrowed 180bn quid and had 0.1% 'growth'. That's what Brown would have done. In fact that's what he did every year from 2001 onwards. Borrowed money, used it to pay his 1,000,000 newly employed public sector workers and declared it all 'growth'.

    What could possibly go wrong?

  • rate this
    0

    Comment number 46.

    On the day it’s announced that this fool of a chancellor has added another £120 billon to the nation debt
    What does the BBC broadcast on his behalf
    Scotland giving up the pound
    Him crying at Thatcher funeral
    You couldn’t make it up
    And we wonder why we are up the creak

  • rate this
    +1

    Comment number 45.

    How on earth did such clowns get their positions, especially the TROIKA members? They are responsible for great suffering and 3 years of Europeans waking to another failed policy of the TROIKA's that has caused hardship, unemployment, theft of pension schemes and salaries, bank failures, etc.

  • rate this
    +1

    Comment number 44.

    Now they've bled the poorest dry, they're probably worried about taxes going up for the rich...

    "Quick" I hear them say, "we have to do something before the oiks guess what's happening and some commoners get into power and raise our taxes!"

  • rate this
    +1

    Comment number 43.

    It has been mere cover for the German seizure of Europe and the overthrow of democracy in Europe.

  • rate this
    +1

    Comment number 42.

    It is terrible to think that such cruel fools have been responsible for such now-admitted mistakes that led to ruin, and yet they will get away with it. Europe, DON'T LET THEM!

  • rate this
    +7

    Comment number 41.

    I predict some very poor economic figures out of France in the next couple of years.

    What austerity have they seen?

  • rate this
    0

    Comment number 40.

    It would be nice for the Greeks to wake up one morning soon and not be presented by another set of austerity measures by the TROIKA and scouring Schauble that haven't and won't worked through no fault of their own. It's time these 'FOOLS' in the TROIKA were made to shut up and pay back the damage they have caused through their complete ignorance and cruelty.

  • rate this
    +1

    Comment number 39.

    The problem with EU's austerity measures
    is that they have been simply way too harsh

    Basically they have been taking more from people
    than people can live on which has resulted in Serfdom

    The question is whether EU is going to reverse austerity in those already most hard hit or let the austerity continue

    Lets not forget it was just yesterday EU took money from people's bank savings

  • rate this
    -1

    Comment number 38.

    MrJones@34
    "the very policy"?
    To be fair to Keynes, would he not have avoiders deficit and cut debt 'in the good times'? US/UK more at fault than Europe

    Brown may have over-trusted, certainly he became a captive of 'Finance', as far back as 2001 having to bail-out banks by selling them gold below value, and finding others internationally even less ready to co-operate in regulation

    Lessons taken?

  • rate this
    +2

    Comment number 37.

    Austerity is a form of 'beggar thy neighbour' that selfish people get very excited about.

    They think that converting their neighbour, who depends on some sort of reverse taxation such as benefits, from being a consumer into a beggar will bring back growth to the economy.

    Hopefully, the age of fantasising about what goes on behind closed curtains is coming to an end. It isn't healthy.

 

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