In theÂ first partÂ of this article I looked at the mounting evidence against austerity by organisations as varied as Caritas, the ILO, the Council of Europe and the IMF. So why is the European establishment pushing for more of the same?
Social and economic misery and despair, growing inequality, dwindling public services, loss of hope and ballooning debts: this is austerityâs scorched-earth legacy. And yet, in a telling demonstration of the extent of their dangerous ideological fanaticism, Europeâs austerity zealots insist that Europe needs âmore austerityâ.
Take Olli Rehn, the infamous Commissioner for Economic and Monetary Affairs, who recently stated that rigour and austerity are working and must not be abandoned, and on the contrary should become part of the agenda of all the governments of the EU and eurozone. Unsurprisingly, a similar degree of âcrisis denialismâ informs most of the Commissionâs documents, such as the latest round of âcountry-specific recommendationsâ (part of the ECâs Macroeconomic Imbalance Procedure). In it, the Commission paints a fairytale-like picture of Europe which bears little or no resemblance to the bleak reality hitherto described: one in which âfinancial stability is returningâ and âthe rise in public debt is being controlledâ; in which âthe EU is moving [â¦] towards a more sustainable growth path that will generate jobs and improve standards of livingâ; in which even Greece has âstabilisedâ its situation and is on the way to recovery; and in which âall economies are expected to be growing againâ by 2015 (on the Commissionâs tendency to always over-estimate potential growth variables see here).
All of which, of course, demonstrates that fiscal consolidation âhas been instrumental in improving the conditions for more balanced growthâ, and that member states must stick to the path of austerity and structural reforms. Special recommendations were spelled out for those countries judged to be cutting too slowly or lagging behind with reforms: Italy, France, Ireland, Spain and others. This is a kind of âlast warningâ, with non-compliance resulting in the interested countries being placed in a dreaded âexcessive deficit procedureâ, in which case an even stricter system of monitoring and surveillance kicks in.
Itâs the same mixture of denial, over-optimism (refuted even by the Social Affairs Commissioner himself, as we have seen) and pro-austerity zeal which can be found in the ECBâs official statements. As the central bankâs latest âprojections for the euro areaâ report reads, the various austerity measures already approved by national parliaments (or likely to be so) for the 2014-16 period âfall short of the fiscal consolidation requirements under the corrective and preventive arms of the Stability and Growth Pactâ, and it will thus be necessary for governments to adopt additional fiscal consolidation measures by 2016. The ECB concedes that âfiscal consolidation measures often have negative short-term effects on real GDP growthâ, but these â it says, despite overwhelming evidence of the contrary â are offset by âpositive longer-term effects on activityâ, as preached by that blatantly disproven economic myth that goes by the oxymoronic name of âexpansionary austerityâ.
Is Ideology Driving Austerity?
How should we explain such apparent reality- and reason-defying stubbornness of behalf of the European establishment? Most critics point to ideology â more precisely, neoliberal ideology. In my book I argue that ideology isnât sufficient to explain the current onslaught, and that we have to face the fact that there might be a more sinister logic at play. As even the aforementioned Caritas report notes, there is good reason to believe that âthe major programmes embarked on to reduce public expenditure and introduce structural reforms, ostensibly justified by the crisis, were in fact aimed at reconfiguring whole areas of the European social modelâ, in a process that âarguably represents the largest transfer of wealth from citizens to private creditors in Europeâs historyâ. That said, it is undeniable that ideology plays a crucial role. Given the models on which the Commission bases its policy recommendations, the unfolding social and human tragedy was not only predictable â it was inevitable.
The problem is that the EC judges member states according to a set of parameters â government deficit, public debt, current account balance, labour market âflexibilityâ, competitiveness, investment, etc. â that, while important, leave human beings â and a whole set of other factors that weigh heavily on the quality of life, such as the quality of the environment, the availability of decent jobs, poverty and inequality rates, community, and so on â entirely out of the picture. To paraphrase Bobby Kennedyâs famous definition of GDP, we could say that the ECâs tools âmeasure everything except that which is worthwhileâ. To the extent that a factor like unemployment is taken into consideration, the shockingly high rates of unemployment that we see today in many European countries are in most cases considered ânaturalâ by the Commission (more on the ECâs ânatural rate of unemploymentâ model here).
A recent report written by Alessio Terzi and Guntram B. Wolff for the European Parliament makes this painfully clear. The authors looked at the frequency with which certain keywords appear in the memorandum documents prepared by the Commission for Greece, Portugal, Ireland and Cyprus. Predictably, words like âfiscalâ, âconsolidationâ, âreformsâ and âbusinessâ figure heavily throughout the programme documents; words like âpovertyâ, âinequalityâ and âfairnessâ, on the other hand, are almost entirely absent. Clearly the EC considers these to be variables of negligible importance.
This highlights the crux of the problem: that some of the EUâs key institutions â chiefly, the Commission (and in particular its stick-wielding arm, DG ECFIN) and the ECB â are in the grip of an extreme neoliberal ideology; and, more importantly, that even if we accept that these policies are simply the product of a misplaced but well-meaning neoliberal faith in the virtues of fiscal rigour and the free market (which is arguable), we would do well to come to terms with the fact that these institutions are never going to bring about a change of policy of their own accord, regardless of the piles of âevidenceâ that we bring to their doorsteps. They have to be stopped.
The next European Parliament should make this one of its key priorities, beginning with the dissolution of the troika. A positive first step in this direction came in March, in the form of a non-binding EP report which argued that the troika was an âad-hocâ set-up with no clear legal basis and with no democratic scrutiny from the European Parliament, whose measures âhave led in the short term to a rise in income distribution inequalityâ and poverty. The report is especially critical of the huge power accrued by the ECB in the wake of the crisis, recalling that âthe ECBâs mandate is circumscribed by the TFEU to the areas of monetary policy and financial stability and that involvement of the ECB in the decision-making process related to budgetary, fiscal and structural policies is not foreseen by the Treatiesâ. The report concludes by calling for a âphasing-outâ of the troika and the creation of a European Monetary Fund âsubjected to the highest democratic standards of accountability and legitimacyâ.
Of course âdisarmingâ the troika and bringing economic policy under some degree of democratic control, at the EP level, wonât in itself put an end to austerity. As is well known, since 2010 the European Commission and the Council have adopted, behind closed doors and beyond public scrutiny, a complex system of new laws, rules, agreements and even a treaty â the Fiscal Compact â aimed at permanently institutionalising austerity on a European scale. As Caritas writes, âEurope is now committed to a policy which involves cutting spending even in a depressed economyâ¦ This could be a recipe not just for one lost generation in Europe, but for several lost generationsâ.
Importantly, this new system of economic governance rests on a series of âautomatic correction mechanismsâ and quasi-automatic sanctions in the event of non-compliance with the rules, which effectively accomplish a lifelong neoliberal dream: the complete separation between the democratic process and economic policies. As Hugo Radice, life fellow at the University of Leeds, writes: âThese proposals, when fully implemented, will not only enforce a permanent regime of fiscal austerity, but also further remove macroeconomic policy from democratic controlâ¦ In essence, it is the politics of depoliticisationâ. This means that any change of policy and re-democratisation of economic policy in Europe necessarily hinges on abandoning the Fiscal Compact, and the absurd sets of regulations on which it is based: chiefly, the âsix-packâ and the âtwo-packâ. The European Parliament approved these, and it can overturn them.
As I pointed out in this article, the broad progressive anti-austerity camp â if we include the more left-leaning wings of the ALDE and Greens/EFA groups â will be the third force in the next Parliament. It is now up to the European progressive movement â at all levels: in the European Parliament, within single member states and, of course, on the streets â to seize this historic opportunity, and use all the instruments at its disposal â from civil disobedience to legal action â to get our democratically elected leaders to do what is necessary to save Europe from its self-inflicted misery. As Yanis Varoufakis aptly puts it, what is needed is ânothing short of a democratic backlash against Europeâs establishmentâ.