The Real Cost of Austerity

Talks surrounding austerity often include ominous statistics, deadlines, and weak words of encouragement from economic institution executives. Yet the drastic policy of austerity that has been set upon some European countries should be looked at in its multidimensionality. Economic jargon most often fails to encapsulate the complex social dynamics of the societies affected by these policies. Consequently, many discourses neglect the consideration of what the long-term effects of austerity will be for Europe.

Unprecedented mass protests, particularly amongst southern European countries affected by the measures, often appear to fall upon deaf ears to the European decision-makers. Yet do these protests depict an accurate picture? Europe has, for the last century, demonstrated a unique defiance of the ‘people’ in times of extreme hardship or discontent with the ruling elite. The often-underreported anti-austerity protests have increased since 2012, with many taking to the streets of Athens, Madrid, Lisbon, London, Dublin and Frankfurt. It is most wondrous that, regardless of these mass popular protests voicing their desperation on the streets of Europe, the EU has yet to change its recovery strategy (Barroso only just mentioned in April that austerity might not be the best path for the euro-zone) and there is little focus on considering what the effects of these austerity measures will entail for Europe's future – both socially and politically.

While integration and unity is easy to formulate in times of economic prosperity, it is under times of real crisis that the fibres holding our union together are truly put to the test. And it appears that Europe's adopted policies to overcome the crisis have caused more division than solidarity. The harsh measures have divided Europe on national lines; Germany leads the push for belt-tightening measures as many countries look upon them with disdain and anger. These concerns have come most prominently from Greece and Italy – where Prime Minister Enrico Letta described Italy as "dying from austerity alone" – but also from Holland's France. It appears that the seemingly unshakeable Franco-German axis established just two years ago has been replaced by a shaky, unsure relationship among the two European leaders, one which Hugo Brady from the Centre for European Reform in Brussels describes as being at "a post-war low." This schism broadly reflects divisions among the Member States on how to surmount the crisis (spending versus saving), also creating additional intra-EU tension amongst the two stronger countries of the euro.

The role of Germany, Europe’s leading economy, is crucial at this time of unprecedented crisis. A leader should also accept criticism when it seems that its preferred policy of austerity is not succeeding and is contributing to its increasing unpopularity across Europe. The rhetoric of “lazy southerners who should have better managed their finances” is used as a way to justify pushing through with further cuts. Not only is this a myth – Germans work an average 1,400 hours a year, Spaniards, Portuguese and Italians work longer hours and Greeks account for 2,030 a year  – but it is also an economically incorrect way of understanding how these countries find themselves in the troubled position they are in now. In fact, it must be kept in mind that while other European countries spent freely in the 1990’s, Germany adopted domestic austerity by suppressing wages in order to bolster its own exports. This had negative ramifications for the rest of the future Eurozone because while Germans consumed less, sold more and consequently got richer, the rest of Europe got into increasing and eventually insurmountable debt as they forcibly practiced the opposite. Low-interest-rate monetary policies supported by Germany increased this gap; while German trade surpluses rose over the past years, deficits increased for the rest of Europe. This doesn’t mean Germany should be responsible for patching over irresponsible spending on some of its neighbours, most notably Greece. However, Germany should now spend more and increase its own consumption to counter balance the budget cuts and lower spending that is being imposed on the rest of Europe. But Germany’s continuation of limited spending has allowed them to further prosper while doing no good to the rest of the Eurozone, almost perpetuating a crisis by persevering with policies of austerity. It has benefited vastly as the rest of Europe accounts for around half of their exports. Furthermore, the check-and-control mechanism within the EU, in which Germany plays a leading role, obviously failed to identify and report any problems for the past decade, thus a “punishment” like that of austerity now seems quite one-sided. As a European leader, Germany should accept some change to its policy that furthers rather than counters the effects on other countries, and embrace a more growth-led policy; investment and spending rather than austerity would be the solution to the economic problems in Europe.

The political effects of austerity must be taken into account when looking at Europe’s future. Euro-scepticism is increasing in Europe, most commonly reflected in the rise of extreme (mostly right-wing) parties that ride on the promise of limiting EU interference in domestic affairs. In the Netherlands, for example, the controversial and extreme right-wing Freedom Party has shifted its political focus from criticism of Islam to criticism of the EU, reflecting people’s anger toward the Eurozone crisis. According to a Gallup poll, euro-scepticism in Holland, a historically pro-Europe country, has reached new heights with 39% wishing to exit the EU entirely. Similar examples can be seen in Greece (Golden Dawn), France (Front National) and Italy (Lega Nord). 

Lastly, the social effects of austerity should be taken into serious consideration. These are not simply perceived, but are concrete and do shape people’s attitudes toward Europe and their future life prospects within it. The most significant social issue that has stemmed from the crisis and has been exacerbated by austerity is youth unemployment. The statistics are extremely worrying: 30.4% in Ireland, 55.3% in Greece, 53.2% in Spain, 35.3% in Italy and 37.7% in Portugal. Europe’s politicians should consider the weight of the mental burden that is clouding this generation as they graduate from schools and universities with such bleak prospects. The social effects of this unemployment will resonate deeply for both the countries and the societal demographics, as young people in the countries hardest hit by austerity often see emigration as their only realistic option for bettering their futures. This will result in an impressive ‘brain drain’ for their countries of origin, and even Europe as a whole, as they look to other emerging global markets for employment. Before the EU loses even more credibility within its populace, it must truly put its young people at the forefront of its agenda, accepting that the lack of growth brought by austerity is hindering their prospects for a bright future.

                                                   

Originally published in 'KCL Dialogue'