Europe has been stuck in an economic slump of near-epic proportions thanks in large part to its insistence on pursuing austerity in the wake of the Great Recession. In the European Union, unemployment is at 12 percent, with 19 million people out of work. Youth unemployment in several countries has eclipsed 50 percent. The deficit-shrinking, growth-inducing confidence fairies that austerity would supposedly create are nowhere to be seen.
Europe’s economic policymakers have been clinging desperately to austerity as a plausible cure for the continent’s ills, despite the mounting evidence that it is making things worse, not better. But over the weekend, European Union economic commissioner Olli Rehn finally signaled support for stepping back from austerity’s abyss. And on Monday, European Commission President Jose Manuel Barroso echoed that call, saying, “While I think this policy is fundamentally right, I think it has reached its limits … A policy to be successful not only has to be properly designed, it has to have the minimum of political and social support."
This is a welcome reversal – carefully couched though it is – that comes at the end of a very bad run for those promoting deep spending cuts and fiscal consolidation. Not only has austerity clearly not worked for the Eurozone, which seems headed for another round of bad economic news, but the intellectual underpinning for austerity has fallen to bits because of, among other things, an Excel error. As the Atlantic’s Matt O’Brien puts it:
Austerians have had their worst week since the last time GDP numbers came out for a country that's tried austerity.
But this time is, well, different. It's not "just" that southern Europe is stuck in a depression and Britain is stuck in a no-growth trap. It's that the very intellectual foundations of austerity are unraveling. In other words, economists are finding out that austerity doesn't work in practice or in theory.
Just three days ago, a top European economic policymaker was promoting a plan “ focused on fiscal consolidation.” But in the face of rising public discontent and louder protestations from some European leaders, that plan now seems consigned to the dustbin of history. (And European markets are jumping accordingly.) As the BBC’s Gavin Hewitt writes:
[T]he austerity believers are in retreat. Ireland and Portugal have been granted seven more years to meet their targets. Spain is likely to miss its target for reducing its deficit. Indeed, it had the biggest public deficit in the EU last year. Increasingly it looks as if it will get more time. Perhaps two more years. Suddenly targets are being eased and relaxed.
What Europe's leaders and officials fear more now is unemployment, recession, and growing disillusionment with the eurozone that seems unable to deliver. Reducing debt is no longer the priority.
Before getting too excited, it should be made clear that we don’t yet know what sort of new policies Europe’s lawmakers have in mind. And the Germans, receiving marks for consistency, are resisting the push to ease deficit-cutting.
But the tragedy of this whole episode is that there were plenty of economists warning that austerity would have detrimental effects and would, ultimately, prove counterproductive. It just took years of misery and millions of people losing their jobs, homes and hope to get European policymakers to agree.
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