Six years after the economic crisis began, Europe is sliding into recession yet again. And austerity policies are roiling France. French President Francois Hollande recently purged the cabinet of three ministers (including one in charge of the economy) who disagreed with his severe approach.
What are austerity policies exactly?
“The precise nature of austerity varies from country to country, but the underlying principle is the same,” explains Sameer Dossani, global advocacy coordinator for ActionAid International, which works in more than forty-five countries to further human rights and eliminate poverty. “Advocates for austerity argue that the reason Europe's economies are flagging is because they spend more than they should. So they argue for cuts in the budget, often threatening the social welfare state (but not the corporate welfare state or the military welfare state).”
Their premise is wrong, Dossani says.
“The actual causes of the financial crisis basically have nothing to do with spending,” says Dossani, whose views do not necessarily reflect that of ActionAid International. “That's an uncontroversial truth in all but one case (that of Greece). Austerians are proposing solutions for a problem that doesn't exist.”
What is hard to explain is why a French socialist has gone along with such measures.
“Francois Hollande, the president of France since 2012, coulda been a contender,” Paul Krugman recently wrote in the New York Times. “He was elected on a promise to turn away from the austerity policies that killed Europe’s brief, inadequate economic recovery. But it was not to be. Once in office, Mr. Hollande promptly folded, giving in completely to demands for even more austerity.”
And the results of such policies are there for all to see.
“Unemployment in crisis-hit France struck a new high in July, official statistics show, in another blow for the deeply unpopular President Francois Hollande,” AFP recently reported. “The 0.8 per cent rise compared to the previous month was the ninth consecutive gain in the monthly unemployment figures.”
“There is no way other than to say that the policies have failed,” Nobel laureate Joseph Stiglitz said to the Wall Street Journal, telling the paper that by his calculation European GDP is 18 percent below what it should be. “They are trying to put the best face they can on this, but the numbers are much worse even than people are talking about.”
So why are European countries sticking to such an unsuccessful recipe?
Dossani says that German attitudes explain a lot of what’s happening.
“I suspect that part of the answer is the political reality in Germany where people feel—with more than a touch of xenophobia—that the problem lies with those lazy southerners who never got their economies right and need to be forced to do so now,” he says. “So Germany is really playing the villain in this story.”
Dossani sees a message for the United States from Europe’s failed course.
“One could choose to take from this the lesson that the United States isn't doing as badly as it might,” he says. “Though President Obama's stimulus package was woefully inadequate, at least we had a stimulus package. Though the Fed’s monetary easing policy didn’t do enough to support the economy, at least it had such a program. Though folks are still recovering from a needlessly painful recession, at least there hasn't been a double-dip or even a triple-dip recession, which is what Europe may be facing now.”
Dossani urges an alternative economic path.
“With interest rates so low, countries can basically borrow money for free,” he says. “They need to do so and to invest in social services and job creation—the opposite of austerity. This is a complete no-brainer in economic terms; in political terms it's clearly not going to happen.”
Perhaps the European financial authorities are listening. The European Central Bank recently announced a stimulus package and an interest rate cut. It is an open question whether this comes in time to rescue Europe from, in France’s departing economy minister’s words, its “descent into hell.”