The EU Commission openly repudiates the austere economic policies

László Andor (on the left), member of the European Commission in charge of Employment, Social Affairs and Inclusion, went to Britain to visit the project “Streetvibes Youth” in Eltham, South East London, funded by the European Social Funds. Reportedly all the people in this photograph, except the Commissioner, don’t have a full-time job. (EC Audiovisual Services, 16/05/2014).

László Andor, Commissioner for Employment, Social Affairs and Inclusion while delivering the opening address at the conference on Social policy innovation yesterday in Brussels, must have known that Eurostat, the EU statistical service, was to announce almost simultaneously that the rate of employment of people aged 20-64 fell to 68.3% in 2013, for a fifth year in a row. This stands against a ‘Europe 2020 Strategy’ target of 75%. Andor said that “We need to realise that we are not meeting these targets (Europe 2020 Strategy); on the contrary, the poverty situation is the most striking: the number of people at risk of poverty or exclusion has risen by 6.6 million. In 2012, 123 million Europeans were living in poverty or facing the risk of social exclusion”.

Despite the rhetoric that the European Union has exited from the 2008 financial crisis, aka banking melt down, Andor recognizes loudly that from 2008 onwards the rate of employment for people aged 20-64 falls continuously, while poverty and social exclusion range free. This percentage had reached its all-time high point at 70.3% in 2008. According to Eurostat, in the year 2009 this variable fell to 68.9%, in 2010 to 68.5%, in 2011 to 68.5%, in 2012 to 68.4% and last year it bottomed with 68.3%. Understandably, the situation was much worse in the south. In Greece only 53.2% of people aged 20-65 had a job in 2013, in Spain 58.2% and in Italy 59.8%.

Europe doesn’t make it

Obviously the open secret is that for as long as the EU economy will be receding or stagnating, the rate of employment will continue shrinking, probably marginally, but always moving away from the 2020 target of 75%. All that in a background of austere economic policies, which roughly means that everybody should do it like Germany. Not the slightest state budget deficits, not the slightest use of monetary policy for growth are allowed. Salvation will come from hard work and tightened belts.

Berlin insists on this strategy and makes sure it applies all over the EU, using the increased political leverage Germany has acquired during the past few years. Germany produced a zero state budget deficit in 2013, and didn’t even use the small inflation allowance of around 1.1% of the GDP. A budget gap equal to the inflation rate is considered as sustainable in the long-term. Understandably Berlin doesn’t even believe in this basic principle and the absurd Teutonic economic theorizing goes as far as targeting a zero inflation rate.

Austerity doesn’t work

This is a real economic trap as reality gradually proves. The German central bank, the powerful Bundesbank, is reportedly now predicting that Germany’s already weak growth will further decelerate over the next months. The reason is that Germany’s growth is based on exports and the international environment is no longer positive. The problems in the developing world and the Ukrainian issue in Europe will cast their shadow on German exports.

It’s a time cherished economic rule that a large and developed economy cannot indefinitely count only on exports for its well-being. Japan is a characteristic case of that. Internal demand can be an equally reliable as a long-term base for growth. There are also political hurdles to a heavily relying on foreign sales economy. The US for example is increasingly using the strong argument of the excessively positive for Germany bilateral trade. What Washington says in reality is that Germany cannot go on ‘stealing’ the growth potential of others, by continuously increasing its exports to trading partners. According to the Americans, Germany has to increase its internal demand and let the Eurozone use more effective monetary tools for growth, abandoning the austere strategy. Those grievances seem to be clearly seen in delays that plague the negotiations for a new era in the EU-US trade, the famous Transatlantic Free Trade Agreement (TTIP).

A message from Greece

The internal austerity and the increased reliance on exports seem to work even less effectively in the south of Europe. The results of the 22-25 May European elections will be a reliable witness of that. Already Greece produced some first signs. Last Sunday Greece held the first round of municipal and regional elections. The fascist group Golden Dawn won almost 10% of the votes in the capital region of Attica, home to almost half of the country’s population. A GD candidate for major of Athens got 16.12% of the vote. In the disadvantaged Athens suburbs of Academia Platonos, Sepolia and Kolonos this person ended first, scoring 20.7% of votes.

Undoubtedly, the social and the political structures in many European Union countries are already overstretched. The austere recipe for economic growth doesn’t seem to work, despite the fact that one after the other the crisis hit countries (Ireland, Portugal, Spain and Greece) are exiting from the EU-ECB-IMF assistance programs, and become financially self-sustained. Unfortunately, the austerity recipe followed all over Europe, holds down growth even in the surplus countries. The weak internal demand in Germany doesn’t help at all Greece, Italy and Spain to start growing again.

Hopefully, a strong message from this European election will change all that, and urge Germany to live up to its role as leading Eurozone economy.

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