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The end of austerity in Europe?

The end of austerity in Europe?
By Euronews
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High-placed political figures have been agreeing that other ways must be found to readjust fiscal formulas that are crushing so many people in Europe.

Italian Prime Minister Enrico Letta has said: “It is important that this line of change in European growth policies and more European political unity must have also Italy as a protagonist.”

Managing Director of the International Monetary Fund, Christine Lagarde said: “We’ve also said that should growth abate, should growth be particularly low, then there should be consideration to adjusting by way of slowing the pace.”

European Commissioner for Economic and Monetary Affairs, Olli Rehn said: “The pace of fiscal adjustment should take into account each country’s specific economic situation. In line with this policy, the pace of fiscal consolidation is now slowing down in Europe.”

Even the president of the European Commission suggested this week that austerity policy may no longer prove useful. The results have been shrinking growth and social suffering.

Unemployment has exploded in Spain and Greece, to more than 27 percent on average. Portugal and France have broken their own records. Nearly a quarter of young Europeans are jobless.

There are 19 million people out of work in the eurozone, meaning 12 percent of the labour force. That is 5.6 million more people than in 2007.

Domestic consumer demand in eurozone countries has fallen. It is 226 billion euros lower than in 2008.

Over the same period, the per capita drop in incomes varies, from 1.6 percent in France to a colossal 20 percent in Greece and Ireland.

Eurozone agreements are not being respected. Nine of the 17 countries in it are not meeting the three percent of GDP deficit goal, and are not forecast to be able to next year either.

But since Germany is the only member in the European Union to enjoy a sound budgetary footing, if there is to be any relaxing of that requirement, the word will have to come not from EU headquarters Brussels but from Berlin.

Riots in Madrid, more than six million unemployed people in Spain, an unemployment rate of 27 percent – as high as in Greece.

Enrico Letta, who has just formed a government in Italy, is demanding the end of austerity.

President Francois Holland is suffering under high unemployment in France. He wants to call time on austerity as well. Is this the end of austerity in Europe?

Euronews spoke to Professor Karl Aiginger from the Austrian Institute of Economic Research (WIFO) in Vienna. He has been the coordinator of the research project ‘A New Growth Path for Europe’ since April 2012.

euronews: “Are we now seeing the end of the European austerity?”

Professor Karl Aiginger: “I think, it’s the end of unintelligent austerity. However, it shouldn’t be a license to waste. The cuts should be slower and the reforms should be sped up. That would lead to less unemployment and the European economy would grow again.”

euronews:“Isn’t that the beginning of a European transfer union?”


Aiginger: “Not at all. First we have to say that the responsibility for a change of direction must be with the countries that have to pursue austerity. They made mistakes and they have to tell their populations, that they want to solve the problem, and that it is their problem. And that it’s not Europe that is forcing something on them. They have to solve the problem with Europe providing assistance.”

euronews: “At the Congress of Germany’s savings banks, German Chancellor Angela Merkel said interest rates are too low for Germany, but too high for the South of Europe. Isn’t she conceding that monetary union in its current form doesn’t work?”

Aiginger: “In a community, different groups have different needs. There isn’t a single way, there are not only interest rates. I actually suggest that the ECB lower its interest rate in the coming week.

“There’s also the possibility of using the structural funds. There is not enough speed, the active component, in the field of investment, that could create jobs for unemployed youth. Some wages for existing jobs are too high, that’s why some young people can’t get a job. This is not the model for a society that we want and isn’t part of a community that shows solidarity.

“Certainly it would be better if there were more money for investment in the southern countries.


“It’s about the structure of spending, the need to solve problems and the attitude of governments who should say “we’re pursuing austerity not because of evil financial markets and the evil Mrs Merkel, but because we’re striving for a competitive industry and competitive tourism in 2030.”

euronews: “So the evil Mrs. Merkel and her austerity have failed?”

Aiginger: “Germany seems to have found a successful way for itself in shrinking its budget deficit. But in its own interest it would be good, if it had higher growth.

“There are so many needs for investment in ecological technology. Germany could become a world leader in ecological technology.

“Germany could invest in the social sector. Germany does not need a low wage sector to the extent she has now. In Germany, the spread between low wages and high wages has grown. There are lot of things to do.”

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