Cut up the credit card or shop till you drop? Will austerity really clean up public debts? Politicians and ordinary Europeans are deeply worried. Governments commonly borrow and spend to wake up their economies. But overstretched credit is enforcing hibernation.
Spain’s new unemployment level – 24.4% – is chilling. It was announced in the same week the toughest budget in decades was pushed through parliament, thanks to the ruling Conservatives’ absolute majority.
The Prime Minister whose Partido Popular swept to power last November, Mariano Rajoy, said: “Austerity isn’t Angela Merkel’s policy, it’s the European Union’s policy. It’s the policy of the euro, the policy of a project we are all in on, because that is the way we wanted it.”
But doubts are creeping in, whether the strictness that Chancellor Merkel of Germany promotes in fiscally troubled states can redeem them.
President of the European Council Herman Van Rompuy said this week the leaders’ main priority is growth.
Even Italy’s Prime Minister Mario Monti, a technocrat named to bring order to its finances, has indicated it would be worth considering different ways to achieve this.
Monti said: “Structural reforms per se will never deliver growth, because if a country becomes more productive and more competitive but there is no demand for its products domestically or around it, then growth will not materialise. And in fact all the structural reforms and budgetary consolidation measures that we are now putting in place if anything are deflationary, not creating growth.”
European Central Bank President Mario Draghi has also suggested that strategy should not be limited to austerity measures. Yes, governments should cut their deficits, but a growth pact has to come on top of their fiscal pact.
It is not only the 17 countries who share the euro that are staring down the well of recession; the UK is in it too, and posting record unemployment.
British Prime Minister David Cameron said in the House of Commons: “We’ve got to rebalance our economy. We need a bigger private sector. We need more exports. We need more investment. This is painstaking, difficult work. But we will stick with our plan, stick with the low interest rates and do everything we can to boost growth, competitiveness and jobs in our country.”
Confronting Merkel, Socialist French presidential candidate François Hollande has said ‘let’s renegotiate’ the discipline deal, proposing euro-zone bonds, unused EU convergence funds and a financial transaction tax as sources to boost growth in the bloc.