The case in favour of tough austerity policy is, amongst others, based on the idea that fiscal consolidation removes uncertainty amongst private sector economies actors, thereby unleashing household precautionary savings and new business investment. In that way, the negative effects on aggregate demand, coming from directly cutting social benefits and public sector expenditures, would be partly offset. Some ‘austerians’ are even of the opinion that this positive confidence effect is so strong that fiscal cuts actually work to push demand and growth up, not down.
A lot of recent macroeconomic research has already directed this ‘confidence’ argument into the waste paper basket. Empirically, the fact is very well established that austerity reduces demand and economic activity. In the words of Paul Krugman, fiscal contractionary policies are, simply, contractionary.
A recent Gallop opinion poll amongst more than 6000 European citizens delivers an identical conclusion and it does so in a powerful way.
First, a majority of respondents at the European level (51%) delivers a clear ‘no’ to the question whether citizens think austerity is working. This majority is opposed by a minority (34%) saying ‘austerity will work but this takes time’. Only 5% gives an unconditional reply saying ‘yes, austerity works’.
When looking at the national outcomes behind this European average, it appears that in those countries where austerity has been pushed to an absolute limit, respondents are the most sceptical. In Greece, 80% reject the idea that austerity can work. In Spain and Portugal, 70% questions the effectiveness of austerity. It is surprising to observe that in Germany, a member state usually viewed as constituting the reference on austerity for the rest of Europe, there’s also a majority (53%) of people rejecting austerity. It’s only in a limited number of Central and Eastern European countries that public opinion is less hostile to the idea (Bulgaria, Hungary,…).
The Gallop opinion poll also raises the parallel question of whether there is a better alternative to austerity. A resounding European majority (60%), led by Greece (94%) and Spain and Portugal (80%), says ‘yes’, with only 16% of respondents across Europe think that there is no alternative to austerity.
Finally, the Gallop poll asks whether people think that the whole of Europe or only some countries are served by austerity policy. It appears people are not naive at all. Only 20% is of the opinion that austerity serves the whole of Europe. In contrast, 67% thinks only certain countries (France, UK and Germany in particular) are benefiting from these policies.
To conclude, the Gallop opinion poll is another piece of evidence that is devastating for austerians. It shows that a majority of people do not believe austerity works and have no confidence in it. With austerity undermining not just incomes but confidence as well, it comes as no surprise that austerity policies triggered a double dip in Europe’s economy.