Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

It’s Time To Stand Up To Troika Austerity (Part II)

Thomas Fazi 19th June 2014

Thomas Fazi, Troika Austerity

Thomas Fazi

In the first part 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 austerity’s scorched-earth legacy. And yet, in a telling demonstration of the extent of their dangerous ideological fanaticism, Europe’s austerity zealots insist that Europe needs ‘more austerity’.

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 ‘crisis denialism’ informs most of the Commission’s documents, such as the latest round of ‘country-specific recommendations’ (part of the EC’s 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 ‘financial stability is returning’ and ‘the rise in public debt is being controlled’; in which ‘the EU is moving […] towards a more sustainable growth path that will generate jobs and improve standards of living’; in which even Greece has ‘stabilised’ its situation and is on the way to recovery; and in which ‘all economies are expected to be growing again’ by 2015 (on the Commission’s tendency to always over-estimate potential growth variables see here).

All of which, of course, demonstrates that fiscal consolidation ‘has been instrumental in improving the conditions for more balanced growth’, 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 ‘last warning’, with non-compliance resulting in the interested countries being placed in a dreaded ‘excessive deficit procedure’, in which case an even stricter system of monitoring and surveillance kicks in.

It’s 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 ECB’s official statements. As the central bank’s latest ‘projections for the euro area’ report reads, the various austerity measures already approved by national parliaments (or likely to be so) for the 2014-16 period ‘fall short of the fiscal consolidation requirements under the corrective and preventive arms of the Stability and Growth Pact’, and it will thus be necessary for governments to adopt additional fiscal consolidation measures by 2016. The ECB concedes that ‘fiscal consolidation measures often have negative short-term effects on real GDP growth’, but these – it says, despite overwhelming evidence of the contrary – are offset by ‘positive longer-term effects on activity’, as preached by that blatantly disproven economic myth that goes by the oxymoronic name of ‘expansionary austerity’.

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 – more precisely, neoliberal ideology. In my book I argue that ideology isn’t 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 ‘the 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 model’, in a process that ‘arguably represents the largest transfer of wealth from citizens to private creditors in Europe’s history’. 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 – it was inevitable.

The problem is that the EC judges member states according to a set of parameters – government deficit, public debt, current account balance, labour market ‘flexibility’, competitiveness, investment, etc. – that, while important, leave human beings – 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 – entirely out of the picture. To paraphrase Bobby Kennedy’s famous definition of GDP, we could say that the EC’s tools ‘measure everything except that which is worthwhile’. 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 ‘natural’ by the Commission (more on the EC’s ‘natural rate of unemployment’ 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 ‘fiscal’, ‘consolidation’, ‘reforms’ and ‘business’ figure heavily throughout the programme documents; words like ‘poverty’, ‘inequality’ and ‘fairness’, 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 EU’s key institutions – chiefly, the Commission (and in particular its stick-wielding arm, DG ECFIN) and the ECB – 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 ‘evidence’ 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 ‘ad-hoc’ set-up with no clear legal basis and with no democratic scrutiny from the European Parliament, whose measures ‘have led in the short term to a rise in income distribution inequality’ and poverty. The report is especially critical of the huge power accrued by the ECB in the wake of the crisis, recalling that ‘the ECB’s 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 Treaties’. The report concludes by calling for a ‘phasing-out’ of the troika and the creation of a European Monetary Fund ‘subjected to the highest democratic standards of accountability and legitimacy’.

Of course ‘disarming’ the troika and bringing economic policy under some degree of democratic control, at the EP level, won’t 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 – the Fiscal Compact – aimed at permanently institutionalising austerity on a European scale. As Caritas writes, ‘Europe is now committed to a policy which involves cutting spending even in a depressed economy… This could be a recipe not just for one lost generation in Europe, but for several lost generations’.

Importantly, this new system of economic governance rests on a series of ‘automatic correction mechanisms’ 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: ‘These proposals, when fully implemented, will not only enforce a permanent regime of fiscal austerity, but also further remove macroeconomic policy from democratic control… In essence, it is the politics of depoliticisation’. 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 ‘six-pack’ and the ‘two-pack’. The European Parliament approved these, and it can overturn them.

As I pointed out in this article, the broad progressive anti-austerity camp – if we include the more left-leaning wings of the ALDE and Greens/EFA groups – will be the third force in the next Parliament. It is now up to the European progressive movement – at all levels: in the European Parliament, within single member states and, of course, on the streets – to seize this historic opportunity, and use all the instruments at its disposal – from civil disobedience to legal action – 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 ‘nothing short of a democratic backlash against Europe’s establishment’.

Thomas Fazi

Thomas Fazi is a writer, journalist and activist. He is the author of "The Battle for Europe: How an Elite Hijacked a Continent – and How We Can Take It" Back (Pluto, 2014) and "Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World", co-authored with economist Bill Mitchell (Pluto, 2017).

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u421983467298feb62884 0 The Weak Strongman: How Trump’s Presidency Emboldens America’s EnemiesTimothy Snyder
u4201 af20 c4807b0e1724 3 Ballots or Bans: How Should Democracies Respond to Extremists?Katharina Pistor
u421983c824 240f 477c bc69 697bf625cb93 1 Mind the Gap: Can Europe Afford Its Green and Digital Future?Viktor Skyrman
u421983467b5 5df0 44d2 96fc ba344a10b546 0 Finland’s Austerity Gamble: Tax Cuts for the Rich, Pain for the PoorJussi Systä
u421983467 3f8a 4cbb 9da1 1db7f099aad7 0 The Enduring Appeal of the Hybrid WorkplaceJorge Cabrita

Most Popular Articles

startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer
u421983467 2a24 4c75 9482 03c99ea44770 3 Trump’s Trade War Tears North America Apart – Could Canada and Mexico Turn to Europe?Malcolm Fairbrother
u4219834676e2a479 85e9 435a bf3f 59c90bfe6225 3 Why Good Business Leaders Tune Out the Trump Noise and Stay FocusedStefan Stern
u42198346 4ba7 b898 27a9d72779f7 1 Confronting the Pandemic’s Toxic Political LegacyJan-Werner Müller
u4219834676574c9 df78 4d38 939b 929d7aea0c20 2 The End of Progess? The Dire Consequences of Trump’s ReturnJoseph Stiglitz

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity”,

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641