Since the financial crisis swept through Europe four years ago, the bloc’s triple-A rated economies have been vociferous backers of controversial austerity measures as the solution to the continent’s woes.
Yet as the crisis drags on, unemployment rises and growth remains elusive, there are signs that among Europe’s smaller fiscal hawks, such as the Netherlands, Austria and Finland, the appeal of austerity is beginning to wane.
The debate is particularly heated in the Netherlands. On Wednesday, following a bitter face-off in parliament, the leaders of both parties in the country’s coalition government, the centre-right Liberals and the centre-left Labour party, took a step back from their commitment to austerity.
They acknowledged that if their latest cuts fail to meet the EU’s budget deficit limit of 3 per cent of national output in 2014, they would give up on meeting the limit that year. “Three per cent is not holy for us. We are letting that go,” said Diederik Samsom, the Labour leader.
The Dutch government has already carried out tens of billions of euros worth of austerity measures. But with the economy shrinking 1.8 per cent last year, a government proposal for a further €6bn in austerity measures in 2014 has encountered fierce resistance.
A so-called “social accord” on austerity measures reached in April between the government, labour unions, and business groups has unravelled, with both labour and business leaders coming out against new cuts or tax raises. Meanwhile, unemployment has risen to 6.6 per cent, housing values and household spending are falling, consumer confidence is near record lows, and bankruptcies hit the highest level ever recorded in May.
Much of the ire is centred on the very EU budget rules that the Netherlands and its triple-A allies strongly advocated the bloc adopt two years ago.
“Why are we cutting €6bn? Only because Brussels says we have to,” said Sybrand van Haersma-Buma, leader of the Christian Democrats.
Note EU-Digest: the proof, however, that these painful austerity measures work is Germany which already put these painful measures in effect about 10 years ago ( when they could not meet the EU prescribed maximum 3% inflation level) and is now benefiting from the results. Germany trimmed its civil service costs, social and welfare and military expenditures.
In the corporate world, austerity, as some corporations believe, certainly does not mean that labor costs have to be brought down to the level of China or India in order to be competitive. It means a smarter, better educated and more efficient high- tech workforce and an industry focusing on high-end export products and knowledge.
Read more: Austerity support frays at edges among EU smaller fiscal hawks - FT.com
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