Three and one-half years ago the infamous Troika (IMF, European Commission and the European Central Bank, with the German government in close attendance) began its unsuccessful attempt to contain the crisis of the Eurozone, with a draconian austerity program for Greece. Subsequently, the Troika would add Ireland, Italy, Portugal and Spain to its list for the austerity medicine. At the end of 2013, what has austerity achieved?
The table in the report shows the preliminary results for 2013 for the two largest Euro countries, plus the five whose governments applied Troika austerity programs during and after 2010. Judging the fiscal balance and debt results as a success implies extremely low expectations. Only two of the seven countries meet the Maastricht deficit criterion of three percent of GDP, Germany and Italy. In the case of Italy the improvement, if that is the appropriate word, since 2010 was barely over one percentage point in GDP. For public debts the levels are so far above the Maastricht rule of sixty percent that achieving that criterion through growth-suppressing austerity is impossible. With the exception of Germany with no change, the debt-GDP ratio increased in every country compared to 2010.
In contrast to this meager harvest of fiscal improvements, the social cost of austerity defies belief. Looking at those same seven countries, only in Germany has per capita income risen, and there by barely four percent compared to 2007 (see first chart). For every other country, the contractions resulting from the global financial crisis persisted under the austerity programs. In 2012 per capita incomes in Italy were nine percent below the pre-crisis level, eleven percent for Ireland and twenty-one percent for Greece. The Irish statistic considerably understates the welfare loss of the population. Because of Ireland’s enormous trade surplus, required to service its external debts, domestic income per head has fallen as much as in Greece. Of the fifteen countries that were members of the Eurozone at the beginning of 2008, only one other than Germany had a 2012 per capita income greater than in 2007 (Austria, by one percentage point).
A government justifies its EU membership to its population on the grounds that by staying within the Union problems are more easily solved. When this is not the case, the Union becomes dysfunctional. The argument that Greece, for example, exiting the Euro would be far more costly and painful than the burden of the current austerity programs is completely disingenuous. This argument says, in effect, once a country is in, it is trapped – no matter how much its population suffers, it would suffer more if it tried to escape.
The argument is also misconceived, because the relevant comparison is the counterfactual – would Greece, Cyprus, Spain, etc. be better able to manage their economies now if they had never joined? To me it is obvious that the answer is not a resounding and unambiguous “no”. If I am correct, that at best the balance of cost and benefits of membership in the Eurozone (and perhaps the Union itself) is unclear, this does not require country-by-country “reforms”. It requires fundamental changes in the governance and goals of the European Union.
The changes should not consist of giving the Commission greater powers to enforce fiscal austerity. On the contrary, the changes should facilitate national level economic adjustments that bring relief and benefits, not welfare-depressing austerity. First among these changes should be a move away from austerity to employment generation as the EU-wide policy focus.
In 1999 Jorge Huffschmidt wrote,
For the complete transcript : A Eurozone Report Card 2013 - Social Europe Journal
The table in the report shows the preliminary results for 2013 for the two largest Euro countries, plus the five whose governments applied Troika austerity programs during and after 2010. Judging the fiscal balance and debt results as a success implies extremely low expectations. Only two of the seven countries meet the Maastricht deficit criterion of three percent of GDP, Germany and Italy. In the case of Italy the improvement, if that is the appropriate word, since 2010 was barely over one percentage point in GDP. For public debts the levels are so far above the Maastricht rule of sixty percent that achieving that criterion through growth-suppressing austerity is impossible. With the exception of Germany with no change, the debt-GDP ratio increased in every country compared to 2010.
In contrast to this meager harvest of fiscal improvements, the social cost of austerity defies belief. Looking at those same seven countries, only in Germany has per capita income risen, and there by barely four percent compared to 2007 (see first chart). For every other country, the contractions resulting from the global financial crisis persisted under the austerity programs. In 2012 per capita incomes in Italy were nine percent below the pre-crisis level, eleven percent for Ireland and twenty-one percent for Greece. The Irish statistic considerably understates the welfare loss of the population. Because of Ireland’s enormous trade surplus, required to service its external debts, domestic income per head has fallen as much as in Greece. Of the fifteen countries that were members of the Eurozone at the beginning of 2008, only one other than Germany had a 2012 per capita income greater than in 2007 (Austria, by one percentage point).
A government justifies its EU membership to its population on the grounds that by staying within the Union problems are more easily solved. When this is not the case, the Union becomes dysfunctional. The argument that Greece, for example, exiting the Euro would be far more costly and painful than the burden of the current austerity programs is completely disingenuous. This argument says, in effect, once a country is in, it is trapped – no matter how much its population suffers, it would suffer more if it tried to escape.
The argument is also misconceived, because the relevant comparison is the counterfactual – would Greece, Cyprus, Spain, etc. be better able to manage their economies now if they had never joined? To me it is obvious that the answer is not a resounding and unambiguous “no”. If I am correct, that at best the balance of cost and benefits of membership in the Eurozone (and perhaps the Union itself) is unclear, this does not require country-by-country “reforms”. It requires fundamental changes in the governance and goals of the European Union.
The changes should not consist of giving the Commission greater powers to enforce fiscal austerity. On the contrary, the changes should facilitate national level economic adjustments that bring relief and benefits, not welfare-depressing austerity. First among these changes should be a move away from austerity to employment generation as the EU-wide policy focus.
In 1999 Jorge Huffschmidt wrote,
…[T]he convergence criteria of Maastricht was totally biased and counterproductive. Today it seems not to be very realistic, but nothing contradicts similar intensive efforts of the EU – not only the countries of the monetary union – for the abolishing of unemployment to achieve progress and successes as well – for example the reduction of unemployment within the next 3 years.Now, fourteen years later, that judgment is even more urgent that it was then. To escape the despair of economic decline and unemployment, we need an EU-wide commitment to full employment, similar to that stated in the US Full Employment Act of 1946, a commitment “to promote maximum employment, production and purchasing power.”
For the complete transcript : A Eurozone Report Card 2013 - Social Europe Journal
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