Austerity absurdity?

“The policy of austerity has reached its limits”, says European Commission President José Manuel Barroso, the first time Brussels has questioned its own policy. It’s time we grasped that one path for such varied countries doesn’t work, writes Süddeutsche Zeitung.

Published on 24 April 2013 at 15:39

Politicians often rave about Europe’s diversity. What they have in mind, by and large, are the intriguing and enriching cultural traditions beyond their own borders, differences that are felt to be pleasing – and worth keeping. What’s interesting is that that pleasure in diversity, even a basic tolerance of it, evaporates fairly quickly when it comes to economic diversity.

In matters of fiscal policy, European leaders call for one path. All countries, in particular the 17 members of the Eurogroup, should meet exactly the same economic criteria and all national economies should be measured by the same yardstick, despite the very different ways economies in Europe are run.

This notion that everything has to be squeezed into a single template has reached its limits in the ongoing crisis. Portugal, Spain, Greece, Ireland have ushered in incredible austerity and reform programmes in order to come up with solid budgets and to meet the criteria for all the eurozone countries. Those objectives, though, have eluded them. Debts are mounting.

So far, the plan has not worked

Seen purely in economic terms, it is a clever plan: first, to reduce debts and push through reforms, in order to get growth back on a healthy footing. The only problem with the plan is that it has not worked out in practice. European Commission President José Manuel Barroso is not wrong when he concedes that a policy can be perfectly correct on paper – but if the citizens refuse to accept it for want of success, it is not enforceable.

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The European Social Democrats promptly congratulated Barroso on having awoken from a five-year coma. It may sound populist, but it contains more than a grain of truth. It has been clear for a long time that the countries fighting most vigorously against the crisis are making precious little progress: despite cutting back on spending and bringing in reforms, companies are going bankrupt, jobs are being lost, and public life is grinding to a halt. Court rulings are not being delivered because copiers are broken, officials must bring pens and toilet paper to work, and hospitals have run out of medicines. One out of eight Spaniards is living in poverty. Those are circumstances that other Europeans can hardly imagine.

Gentle nudge to the steering wheel

Two conclusions can be drawn from this. Naturally, the Eurozone countries cannot completely abandon the austerity and reform policies in the short term; that would bruise confidence in the monetary union too severely. However, a gentle nudge to the steering wheel is necessary: the European Commission can interpret the strict rules of the stability and growth pact differently for different cases – and give much more time to the countries in crisis to hit their budgetary targets.

Over the long term, much more thought must be given as to whether the once acclaimed pact, with its rigid and unvarying rules for all, is still topical. The crisis has shown that, despite the common currency, Europe retains its uncommon economic diversity.

View from Spain

A difficult equation

Spain's economic climate remains "gloomy," writes Spanish financial daily Cinco Días. The kingdom's gross domestic product (GDP) is set to shrink by 1.5 per cent in 2013 rather than the 0.5 per cent initially forecast, according to Economy Minister Luis de Guindos. Prime Minister Mario Rajoy was scheduled to announce new reforms aimed at reducing the deficit on April 26. But the newspaper sees a glimmer of hope in the recent declarations of European Commission President, José Manuel Barroso.

There are voices coming from Brussels which, without questioning the need to move towards fiscal adjustment, are beginning to plead for implementing some economic stimulus initiatives. More and more signs are pointing in this direction.

The German economy, the strongest in the EU, is also beginning to suffer from the effects of the crisis, adds Cinco Días. The Purchasing Manufacturers' Indexes (PMI), seen as an indicator of a country's overall health, contracted in April for the first time in five months. According to Cinco Días

This not only suggests that the disease that ravaged the peripheral economies is getting closer to the heart of Europe, but also that Berlin's dogmatic attitude towards austerity is beginning to crack. [...] The challenge for Brussels and for European governments is knowing how to tentatively balance public deficit reduction policies with the implementation of measures that will ease the path to economic growth.

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