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

Thomas Fazi

In my book, The Battle for Europe: How an Elite Hijacked a Continent – and How We Can Take It Back, published some months ago by Pluto Press, I argued that the austerity policies imposed on European member states (especially those of the periphery) by the Berlin-Brussels-Frankfurt ‘axis of rigour’ and by the troika were not only proving to be a colossal failure even by mainstream economic standards, but would also lead to – and in some cases were already leading to – nothing less than a social and humanitarian catastrophe, and to the potential destruction of the ‘European social model’ as we know it.

Of course, I wasn’t alone in making such a claim – I was part of a growing chorus of concerned (if not outright indignant) citizens, activists, heterodox economists, trade unions and social movements which had been cautioning for years against the potentially disastrous effects of these policies, and there was already a wealth of data corroborating such a conclusion. But I was nonetheless faced with the daunting task of attempting to paint a coherent picture of the situation and build a convincing argument based on a myriad of (often preliminary) pieces of information from a myriad of (often conflicting) sources, since no extensive, cross-country study into the effects of the austerity policies had yet been released (with the possible exception of The Body Economic by David Stuckler and Sanjay Basu).

That is not the case anymore. Various studies looking precisely at that have recently seen the light of day – and the picture they paint surpasses even the most pessimistic forecasts. In March, the Catholic charity organisation Caritas Europa – hardly a hotbed of left-wing radicalism – released a report titled ‘The European Crisis and its Human Cost’, which looks at the impact of austerity programmes in Greece, Ireland, Italy, Portugal, Spain, Cyprus and Romania (and builds upon the organisation’s first crisis monitoring report, released in 2013). Its conclusion are unequivocal: the budget cuts and tax hikes implemented in these countries over the 2010-2013 period have ‘disproportionately’ hit the poor and are directly responsible for a dramatic rise in inequality and unemployment levels (especially among the youth), suicide, poverty (including child poverty) and at-risk-of-poverty rates, severe material deprivation, homelessness, social exclusion and distress. As the study reads:

The findings of the report demonstrate beyond any doubt that austerity measures are impacting very negatively on the lives of people in poverty, and driving many more into poverty for the first time […]. The people paying the highest price currently are those who had no part in the decisions that led to the crisis, and the countries worst affected are amongst those with the biggest gaps in their social protection systems so their welfare systems are least able to protect their vulnerable populations. This process is economically unsound as well as being unfair and unjust.

In many countries, austerity measures are leading to a contraction or lowering of quality in public services that are particularly important for people at risk of poverty or social exclusion. Especially worrying, according to Caritas, is the deterioration of national healthcare systems, which have come under pressure to cut costs in all ‘crisis countries’ – a measure which ‘disproportionately affect[s] poorer people who are not in a position to compensate for them’, with an increasing number of people in various countries reporting difficulties in accessing healthcare.

This means that austerity is not just destroying the hopes and expectations of millions of people around the continent. Increasingly, lives are being lost. Public health experts David Stuckler and Sanjay Basu explain in the aforementioned The Body Economic: Why Austerity Kills how by resorting to budget-crushing austerity measures many countries have turned their recessions into all-out epidemics. The authors estimate that more than 10,000 additional suicides and up to a million extra cases of depression have been recorded in Europe and the United States since governments started to introduce austerity programmes.

‘Had austerity been run like a drug trial, it would have been discontinued, given evidence of its deadly side-effects,’ says Stuckler. A recent article in the prestigious medical journal The Lancet also places the blame for the post-crisis deterioration of health levels across Europe on the austerity measures demanded by the troika, concluding that ‘although recessions pose risks to health, the interaction of fiscal austerity with economic shocks and weak social protection is what ultimately seems to escalate health and social crises in Europe’. The same conclusion can be found in a British Medical Journal editorial. In all periphery countries, Caritas has seen a rise in demand from nationals for its charity services, which previously were mostly reserved for migrants and refugees. Moreover, the study also notes that austerity is failing miserably even in economic terms. The report’s conclusion leaves little room for doubt: ‘The policy of prioritising austerity is not working and an alternative is required’.

A recent 357-page report by the International Labour Organisation (ILO), the Geneva-based UN agency, makes an equally scathing assessment of the effects of austerity in Europe. According to the ILO, fiscal consolidation has given rise to persistent unemployment, lower wages and higher taxes. All three have boosted poverty and social exclusion rates, which now affect some 123 million people or 24 per cent of the EU’s population. Before the start of the crisis in 2008, the figure was 116 million. Today, around 800,000 more children live in poverty compared to five years ago. ‘The achievements of the European social model, which dramatically reduced poverty and promoted prosperity in the period following the Second World War, have been eroded by short-term adjustment reforms’, the report notes, warning that an additional 15-25 million people face the prospect of living in poverty by 2025 if fiscal consolidation continues.

Even the European Parliament’s employment committee recently adopted a report accusing the troika as well as the eurozone’s finance ministers of creating a ‘social tsunami’.

[Several studies] show, without the shadow of a doubt, that the austerity policies and the structural reforms imposed in the troika countries have led to a real social tsunami of massive unemployment (it has tripled in some countries) especially among young people, the closure of hundreds of thousands of companies, mainly SMEs; and a sharp rise in poverty and social exclusion

said the Spanish centre-left MEP Alejandro Cercas, who authored the report. Interestingly, it’s the same conclusion reached by none other than the EU’s social affairs commissioner, László Andor, who recently took issue with his own institution’s policies by stating in no uncertain terms that austerity has wrecked Europe’s social welfare model and ‘in many cases actually aggravated the economic crisis’. He described the eurozone as flawed from the start, forcing troubled member states to make deep cuts in the private and public sectors via internal devaluation. ‘Internal devaluation has resulted in high unemployment, falling household incomes and rising poverty – literally misery for tens of millions of people’, he said.

It gets worse, though. There is mounting evidence for the fact that the troika’s policies may be more than simply immoral – and may actually be straight-out illegal. This is the conclusion reached by Andreas Fischer-Lescano, a Professor of European law and politics at the University of Bremen who was tasked by the European Trade Union Confederation (ETUC) to look at the legality of the so-called memorandums of understanding (MoU) signed between bailed-out countries and their lenders. In his lengthy report, titled ‘Human Rights in Times of Austerity Policy’, Fischer-Lescano found many of the troika’s demands to countries receiving financial assistance – which included cuts in social security schemes, education and healthcare, minimum wage reductions, encroachments on pension systems, deregulation of labour markets, decentralisation of collective bargaining, privatisation of state assets, and so on – to ‘have had a far-reaching impact on human rights in the crisis countries’ and to be in breach of a number of human and fundamental rights as laid out in the EU’s Charter of Fundamental Rights and in a series of European and international charters, such as the ECHR, the UN Social Covenant, the RESC and the ESC.

The results are very clear. The socially unjust and economic unreasonably austerity of the EU must come to an immediate termination. It is bad for the people, bad for Europe and it is also unlawful

said Bernhard Achitz, general secretary of the Austrian Trade Union Federation. A similar verdict was recently reached by the Council of Europe, the EU’s human rights watchdog, which in its latest annual report identified some 180 violations of European Social Charter provisions on access to health and social protection across 38 European countries, largely as a result of fiscal consolidation (the ESC is a Council of Europe treaty adopted in 1961 guaranteeing social and economic human rights). In the bailed-out countries, the committee found several breaches – particularly in terms of wages and social benefits. The High Commissioner for Human Rights of the Council of Europe also identified Cyprus, Greece, Italy and Portugal as among the European countries where, as a result of austerity measures, there is a risk of a rise in children engaged in child labour.

Moreover, to add insult to injury, austerity is proving to be a failure even by mainstream economic standards, with a number of member states still mired in stagnation (or outright recession) – and moving swiftly towards deflation – as well as burdened by ballooning public debt levels, largely as a result of the recessionary effects of austerity. The situation is such that the IMF has recently deemed it necessary, once again (see, for example, the Fund’s controversial study into the fiscal multiplier), to school its European policy partners, the Commission and the ECB, on some basic economic laws, such as the fact that austerity helps to temporarily bring deficits down but leads to an increase in long-term debt levels (given the weak nominal GDP effect) because it discourages investment and ‘implies procyclicality’.