Austerity in Europe

„If it is true that the eurozone crisis is now largely behind us, we are far from drawing all the consequences. The threat we face now is no longer the mistrust of the markets but that of the peoples.“ With these admonitory words President Hollande argued in front of the European Parliament in favour of a „comprehensive reconstruction“ of the economic and monetary policy of the European Union. To avoid this Europe had to increase its efforts for more stability and growth.

How shall this be achieved? The French President speaks decidedly out in favour of a continuation of cutback policy and at the same time asks for national as well as EU initiatives for growth and employment. On the one hand the ‘Treaty on Stability, Coordinatin and Governance in the Economic and Monetary Union’ and the accompanying so called ‘six pack’ and ‘two pack’ agreements, as well as interventions of the European Central Bank point in the right direction but with this one should not let the matter rest. 27 million unemployed and half of the youth in Europe without a job would permit „no respite“, as Hollande put it. The challenge to create growth had to be accepted. This does not sound more precise then last year‘s claims for growth impulses.

Indeed, there is enormous need to act considering the situation: After five years of economic crisis the euro-zone will again suffer from slight contraction processes  of economic performance this year; Italy and Spain will clearly be in the red and even Germany only shows a minimal surplus of no more then one percent. At the bottom line it must be adhered to that the 27 countries of the united Europe did not yet reach the level of economic performance of 2007. The ongoing crisis pushes unemployment in Europe to new heights, as Eurostat statistics demonstrate. According to this in November 2012 26.1 million people in the EU-27 and 18.8 million people in the euro-zone were unemployed – in each case two million more then the year before. Most of all youth unemployment reaches dimensions as never before in history: every fourth European under the age of 25 (euro-zone 24,4%, EU 23,7%) has no work, no income, no perspective on life. These are 5.8 million young people in the EU and 3.7 million in the euro area.

If this endless austerity policy is further pursued, there is no way out of this economic-social dead end. It is no progress to show that investions are urgently needed for sustainable growth and thus an expansive EU-budget could be a step in the right direction because Hollande sticks to the less than convincing formula of growth impulses, as well as a european-wide debt redcution, as well as improved competitiveness. Restrictingly, he demands that such measures should be adjusted to the respective national characteristics. „Otherwise we have endless austerity, which I reject.“ said Hollande with a view to his own country. There unemployment rose to 4.59 million (including marginally employed). Due to the high degree of economic integration between France and Germany there was a small chance to deviate from the competitive European policy.

In front of the EU Parliament Hollande repeated his demand for a growth programme for Europe but unfortunately this claim becomes more and more abstract while the French deficit reduction touches more and more on the daily life of the citizens. The German government resists to a loosening of the deficit standards on European level or even a policy boosting real economy growth, with the backing of France. Given the need to economise on national level the same applies to EU level. Great Britain, Germany, the Netherlands, and Sweden have virtually got their way with a cutback of the EU bugdetary frame 2014-2020. Against this background the additional billions intended to fight youth unemployment in particularly hit regions can only be mustered through savings in other places. Critics rightly warn against too heavy cuts, endangering the targeted impulses for European economy. The European Growth Pact was completely insufficient and there is the danger of solidifying the shrinking course of the EU by budget resolutions.

Should the EU budget 2014-2020 also be approved by the European Parliament, the European Growth Pact will be „ultimately buried“. Growth-enhancing investions have been deeply cut in crisis-ridden countries. The European Fiscal Compact with its strict austerity programme runs at full blast. The affected countries are at the moment neither able to fully draw funds offered by the EU for structural promotion, nor to meet constructive recommendations for targeted job creation.

Hollande’s proposal to transfer the old French practice of devaluation to the euro to protect the national economies from internal devaluation pressure finds only little consent with his European colleagues so far, even though the suggested way of reforming the international currency system is necessary. Only few industrial branches of France are internationally competitive (aviation, luxury goods) these days.The German chancellor banks on the strengthening of competitiveness – she wants to enforce an intensification of the international locational competition for comparative advantages with wages, social charges, taxes etc. However, it seems as if a little expertise has survived in the German ministry of finance since there, after Hollands advance, while stressing international unity it was commented, „that currency exchange rates should mirror the economic fundamental data“, but also that „a devaluation race of currencies should be avoided“, as it is now  forced by the Japanese central bank policy to subsidise exports.

The half life of political objectives becomes ever shorter. In June 2012 the European heads of state demanded a growth pact. After the budgetary counsels we know that for the next years this remains an unsubstantial claim. The French president postulates in the European Parliament: „Saving: yes. Weakening the economy: no“ – with the approval of the EU budget only a few days later even this alignment is collected. There is little reason to hope for a vigorous offer to overcome stagnation and fight unemployement.