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The cruelty of EU austerity Brussels is punishing the poor simply because it can

The weak suffer what they must (LOUISA GOULIAMAKI/AFP via Getty Images)

The weak suffer what they must (LOUISA GOULIAMAKI/AFP via Getty Images)


November 9, 2021   4 mins

Much has been said about the supposedly “unprecedented” fiscal measures deployed by the EU during the pandemic. This was supposed to be the start of something new: the birth of a new post-austerity era.

But, although it seems to have slipped the minds of the EU’s finance ministers at their meeting yesterday in Brussels, the truth is that the scope of the bloc’s support package has been wildly overblown. The IMF puts the EU’s discretionary fiscal stimulus at a paltry 3.8% of GDP — a figure dwarfed by the massive discretionary fiscal stimulus of 25.5% of GDP in the US.

The same chasm between narrative and reality can be seen with the much-vaunted Europe-wide “recovery fund” known as Next Generation EU (NGEU). Despite the fanfare, it amounts to barely 5% of the EU’s GDP. What’s more, the funds will be disbursed over the course of six years, resulting in, at best, a fiscal expansion of around 1% of GDP on average between 2021 and 2024. And that’s compared to a GDP loss for the EU as a whole of around 15% just in 2020.

Predictably, the funds come with very strict troika-like conditions attached. They are conditional on compliance with the European Commission’s infamous country-specific recommendations, which in the past have consistently demanded that governments cut public spending — especially on social expenditure (particularly pensions), healthcare and unemployment benefits. This is ultimately what the NGEU is all about: increasing Brussels’s control over the budgetary policies of member states and strengthening the EU’s regime of technocratic and authoritarian control. It’s the EU doing what the EU does best.

So overall we can say that the pandemic has not resulted in any radical rethinking of policy at the European level. Neither has it resulted in any structural change. Indeed, the old fiscal rules are set to be reinstated in 2023. Even though there’s much talk of “reforming the EU’s fiscal rules”, the truth is that everyone knows that serious treaty reform is off the table — as Valdis Dombrovskis, executive vice president of the European Commission, has repeatedly stated.

It’s not just the opposition of the so-called frugal countries — the Netherlands, the Nordic countries, the Baltics and Austria. Anyone who expects a change of heart from the new German government is also bound to be disappointed. Olaf Scholz, Angela Merkel’s successor, is, as Wolfgang Münchau has noted, “a staunch fiscal conservative, on a par with his predecessors, Wolfgang Schäuble and Peer Steinbrück, the Social Democrat behind the debt brake”.

Moreover, regardless of who takes over Jens Weidmann’s role at the Bundesbank, growing inflationary pressures in Germany — in September, inflation hit a 29-year high of 4.1% — mean that fiscal hawks will easily gain the upper hand in the debate. Regardless of the actual cause of inflation (which is largely a result of the massive supply chain disruptions happening around the world), German fiscal hawks will blame it on overspending — with cuts being the only solution.

So, all things considered, we can expect a return of austerity to Europe in the near future. Indeed, it is already taking form. Mario Draghi’s Italy is a case in point. In the current debate, the EU’s most indebted country is often presented as a champion of flexibility and European fiscal reform. However, the reality is quite different. Italy’s latest budget report forecasts a huge deficit reduction — from 10% to 4% of GDP (more than 100 billion euros) in little over a year. Italy’s age of austerity, then, seems far from over.

A return of austerity to Europe as a whole would be devastating, especially given that many countries are still recovering from the post-2008 austerity shock therapy. That experience didn’t just prove to be a colossal failure in economic terms but also led to nothing less than a social and humanitarian catastrophe, particularly in those countries that were subject to the “economic adjustment programmes” (EAPs) demanded by the EU-led troika: Greece, Ireland, Portugal, Spain and Italy (which was never officially in an EAP but saw the imposition of EAP-like policies by former European commissioner Mario Monti, who came to power through an EU-orchestrated “soft coup”).

Numerous reports over the years have confirmed that the budget cuts and tax hikes implemented in these countries disproportionately hit the poor and are directly responsible for a dramatic rise in inequality and unemployment levels (especially among the youth), as well as rates of suicide, poverty (including child poverty), severe material deprivation, homelessness, social exclusion and distress. Even a report from a few years back by the European Parliament’s own employment committee claimed 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”. These policies have in many respects undermined the very material bases of democracy, leading to social and economic instability.

In recent years, some countries have introduced measures to cushion the effects of austerity. In Italy, for example, the Five Star Movement-League government that emerged from the 2018 elections — which was first and foremost a rebuke of the parties that had administered the disastrous austerity policies — introduced two major policies that went in that direction: a “citizenship income”, a form of income supplement for poor households, and a pension reform lowering the retirement age.

Both those policies are now under threat from the techno-authoritarian government led by Draghi, who is, let us not forget, one of the chief architects of the EU’s post-2008 austerity framework. A new reform raising once again the pension age has already been announced, and the ranks of those in the Government calling for the abolition of the “citizenship income” continue to grow.

This would leave millions of families with no support whatsoever, in an economy that has been ravaged by 18 months of pandemic. But punishing the poorest and weakest members of society for crises they have not caused — first the financial crisis, now the Covid crisis — has long been standard policy, in Italy and elsewhere. As the saying goes, the strong do what they can and the weak suffer what they must.


Thomas Fazi is an UnHerd columnist and translator. His latest book is The Covid Consensus, co-authored with Toby Green.

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J Bryant
JB
J Bryant
2 years ago

So what’s the incentive for countries such as Italy to remain in the EU?
I still remember the news reports from early in the pandemic when one of the first things EU countries did was close their national borders (so much for an integrated Europe). Then Italy was hit very hard by covid and, for an uncomfortably long time, the EU offered no help. The Chinese, in a major PR stunt, sent cargo planes and fully-staffed field hospitals to care for some of Italy’s covid patients. Only later did Germany offer to care for a small number of Italy’s covid patients.
I’m certainly not an expert on the EU but I don’t see how it will avoid falling apart or shrinking in size to maybe France, Germany and the Netherlands.

James Joyce
James Joyce
2 years ago
Reply to  J Bryant

The EU is too big and aspires to be too much of a nanny state. Brussels wants to dictate that Lithuania have gender neutral, two spirits, trans-friendly bathrooms (can’t settle on the right term here), while Lithuania wants to deal with issues that are important to Lithuania, not bend a knee to Brussels for their social justice agenda. Can you blame them?
EU too big and not working, as noted above. A better option would be a friendly split–Scandinavia goes its own way and gets its own currency. Baltic states and maybe Poland–who are resisting a manufactured invasion by Belarus, supported by Russia. Instead of trying to dictate a dubious social agenda, why hasn’t the EU, as a show of solidarity, sent serious numbers of troops to the Polish, Latvian and Lithuanian borders showing joint resolve to stop the invasion? Where’s the solidarity?
Other regional blocs can and should split off. EU too big, a failed experiment. The countries don’t even have the same currency, and it’s sort of crazy for Greece to have the same currency as Finland.

Last edited 2 years ago by James Joyce
Colin Elliott
CE
Colin Elliott
2 years ago
Reply to  J Bryant

The incentive for the leaders of countries such as Italy to remain in the EU is knowing that the EU will make life as uncomfortable as possible, without mercy, utilising any overt or covert means possible, and able to rely upon other Italians and media undermining you.
And the first hurdle is currency.

Paddy Taylor
PT
Paddy Taylor
2 years ago

Forget “timeo Danaos et dona ferentes” – look to Greece’s example and beware anyone from Brussels seemingly bearing gifts.
My Greek friends laugh (through gritted teeth) every time any media outlet describes what we have endured in this country as ‘Austerity’.
Look at what real austerity is, as imposed on the people of Greece, and then compare it to what we got here. That ‘Vicious Tory austerity’ – by which they mean those merciless and savage cuts that saw public spending wantonly slashed from £780 billion in 2017 to only £842 billion (pre-Covid).
In return for “helping” Greece, Brussels dictated an austerity regime that insisted on –
> Removing almost all existing employment protection laws – which allowed companies to fire staff without cause and drop their wages as they saw fit. (Imagine that here in the UK, if you can)
> ACTUAL pay cuts for public sector workers of 30% (as compared to capping pay increases to 1% in the UK). Whilst at the same time lowering tax thresholds so that these people would still have to pay taxes at similar levels having just had their salaries cut by 30%!
> Cutting the minimum wage by almost a quarter. (As opposed to not increasing it as much as people would like here)
> Cutting 150 000 public sector jobs
> Genuine and deep cuts to both Health and Education spending – (as opposed to the UK which continued to increase spending on both – yet this was described as ‘savage cuts’ by the press)
> Raising the retirement age, repeatedly
> Cutting pensions at the same time as announcing large tax increases on pensioners. (Whilst we in the UK complained about losing the triple-lock)
> Repeated tax rises that hurt the poorest the most, like VAT
> the State taking control of publicly owned companies with no choice or proper restitution for shareholders.
Try to imagine any of those things actually happening in the UK. You can’t, it would be unthinkable.
10 years of Brussels inflicted (and it is Brussels inflicted) austerity saw the total Greek economy shrink by more than 25%. Read that again: more than a 25% drop in GDP.
More than half a million young skilled Greeks left their homeland. How many will return? Who knows? But in the meantime the brightest, boldest and best of a generation left the country because their life-chances were so damaged by austerity, imposed on them by a foreign power.
They would be the people to rebuild the economy, they would be the entrepreneurs, the future business leaders.
Anyone who can look at the ruin of Greece – imposed by the ECB (and wrongly attributed to the IMF) – and think they’re out of austerity, either doesn’t understand the situation or is so rose-tintedly optimistic that they’d probably describe the Parthenon as a ‘bit of a fixer-upper’.

None of the much-touted “Bail-out” money ever landed in Greece long enough to make a drachma’s worth of difference to the Greek people. All the bail outs have been for (mainly German and French) banks.
What angers me is how left-leaning Europhiles support this. It is indefensible. It seems so blatantly hypocritical until you realise that their belief in a benign EUtopia could not survive a truthful rendering of how a member state was sacrificed to cover the bankers’ bad bets.
This is the real kicker for me, – the absurd mental gymnastics required for Europhile posters who decry ‘evil Tory vermin’ for “inflicting” (comparatively gentle) austerity on the UK and yet endorse the punishing austerity inflicted on Greece – at the orders of Brussels – and simply wave it through. I cannot fathom how they manage to justify that (blindingly obvious) double-standard to themselves.
(Scratch that, I know exactly why they do –they stick their fingers in their ears and go “la-La-la” – because otherwise they’d have to confront an uncomfortable reality that paints the EU as the authoritarian, hopelessly undemocratic and wildly unlevel playing field that the rest of us have been complaining about for years.)

Colin Elliott
Colin Elliott
2 years ago
Reply to  Paddy Taylor

All decided by the Eurogroup, who meet in camera, and don’t publish agenda or minutes.

Dan Gleeballs
DG
Dan Gleeballs
2 years ago
Reply to  Paddy Taylor

Given that those sort of cuts are sometimes considered as a good thing by UK Conservatives (cutting the public sector etc), I’m fascinated to learn whether they will lead to a leaner, more efficient economy. Can you keep us informed?

Paddy Taylor
PT
Paddy Taylor
2 years ago
Reply to  Dan Gleeballs

Dan, they never cut the public sector. Even when they modestly slow down the increase in public-sector spending it is described in the most catastrophist terms imaginable. I’m all for a lean and efficient economy, but whenever there are squeezes on the public purse (just a slowdown rather than any actual decrease in spending), the first things to suffer are the services themselves, rather than a rationalisation of superfluous expenditure.
Hence the library closes, the outreach programme is shelved or some other beneficial programme is shuttered, all whilst the inclusivity and diversity manager (on a public funded salary of £75K+) goes on their merry way, and the BBC & Guardian call it austerity!

Cheryl Jones
CJ
Cheryl Jones
2 years ago

I see so many EUphiles expound the virtues of the EU and deride Brexit but I can’t help but feel that one of the main reasons people love the EU is because they are scared not to. “But it was all right, everything was all right, the struggle was finished. He had won the victory over himself. He loved Big Brother.” 

Ian Barton
IB
Ian Barton
2 years ago
Reply to  Cheryl Jones

They are on the EU “train to somewhere” and trying to convince themselves it will work out okay.
Hotel California awaits …

Last edited 2 years ago by Ian Barton
Andrew Lale
AL
Andrew Lale
2 years ago

What a strange world Mr Fazi inhabits, where the most important things in the world are government programs and how well they are funded. I don’t suppose he’s sees himself as a member of a tiny weird cult, but he is. Poor people aren’t poor because government programs aren’t well enough funded. No country will ever be rich enough for its government programs to make its poor people rich, or even moderately well-off. Paid employment makes people better off, and only that. So obviously, the focus of every intelligent person must be to create more, better paid employment, and the government has only a simple role in that scenario- get out of the way.

George Knight
George Knight
2 years ago

So what’s new? We’ve had Europe of the Dictators and now it is emerging again under a pan-European form led by EU technocrats. Keep waving the flag!

Dan Gleeballs
Dan Gleeballs
2 years ago

A year’s break from income tax would be an extraordinary stimulus. Can you imagine how much would get done in that year as every entrepreneur sought to secure a more prosperous future? It would supercharge the economy – and I suspect the dear nanny state would still get decent returns from VAT. No doubt borrowing would have increased as it did over Covid, but isn’t that a better idea than government paid furlough?

Of course, the EU has always leaned towards big state solutions. They disburse largesse to the upstretched hands, not allowing them the freedom and dignity to drag themselves out of a hole.

I think that’s why I detest these totalitarian states – they rob us of dignity.

Last edited 2 years ago by Dan Gleeballs
Bogman Star
Bogman Star
2 years ago

I lived in Ireland during the period that you describe as a “social and humanitarian catastrophe” lol. Got news for ya buddy, everything was fine, no discernible effect. Sorry to let reality intrude on your pre-baked dogma. Focus your lens on the UK instead: https://www.telegraph.co.uk/business/2021/10/14/age-austerity-far/

Jon Redman
HJ
Jon Redman
2 years ago
Reply to  Bogman Star

Did you read the next paragraph?

the European Parliament’s own employment committee claimed 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”.

What was that about dogma?

Ian Barton
IB
Ian Barton
2 years ago
Reply to  Bogman Star

Sounds like you weren’t one of the public sector families or construction workers who had deep pay cuts …. or one of the 13% unemployed …. or one of the newly homeless …. or deeply underwater from the exacerbated housing crash.
Don’t count on a bailout from your German paymasters next time – they are getting bored of subsidising the reckless fringe countries…

Last edited 2 years ago by Ian Barton
David McKee
David McKee
2 years ago
Reply to  Bogman Star

Interesting claim. So I looked up Irish migration statistics (https://www.cso.ie/en/releasesandpublications/er/pme/populationandmigrationestimatesapril2020/) and Irish unemployment numbers (https://www.cso.ie/en/statistics/labourmarket/monthlyunemployment/).
Ireland reverted to its traditional role as an exporter of people from 2010-14 inclusive. And it’s not hard to see why. Adult unemployment more than doubled 2008-2009, peaking at 13% in 2012. It took until 2019 to recover fully. Youth unemployment peaked at a catastrophic 32% in 2012, and has only now recovered to its pre-crisis level.
But that’s the thing about the unemployed, isn’t it? They stay at home and don’t make a nuisance of themselves. No wonder Bogman Star never noticed a thing.

Red Reynard
Red Reynard
2 years ago
Reply to  Bogman Star

Hello, Bogman Star
Yep, everything was fine, and then ‘pop’ – austerity landed. Here is an article about the level of homelessness in 2015
“…How have we gotten to this stage? A country that was building houses as quickly as Lego? All we did was build and build, to the point where we were awash with unfinished ghost estates and now we are told that we don’t enough properties to house people.
It seems that the powers that be aren’t actually addressing the reasons that people including families with young children [are] being left without a roof over their heads…” https://www.independent.ie/regionals/corkman/opinion/homelessness-a-problem-that-extends-far-beyond-the-capital-31479683.html, last accessed 09/11/21
I try not to let my support for Brexit blind me to the reality; can I respectfully suggest you try to do the same regarding the EU.
All the best
Red