European citizens have lost out on nearly €3,000 a year because of the austerity measures implemented by EU governments since the 2007 financial crisis, according to a new report.
The study by the New Economics Foundation (NEF) and Finance Watch released on Friday also says that EU countries could have been spending up to €1,000 more annually per person on public services if less harsh cutbacks had been applied.
The news comes at a time when EU states are racking up levels of debt unseen during modern peacetime to mitigate the COVID-19 pandemic and effects of the war in Ukraine.
Frank Van Lerven, programme lead of macro-economics at NEF, said austerity measures have been a failure.
“The last decade of austerity policies has damaged European economies and stopped our living standards from improving,” Van Lerven said.
“An obsession with debt and deficit reduction neither boosts economic growth nor keeps debt low. Instead, austerity has held European countries back from their potential.”
After the financial crisis, Brussels introduced fiscal rules for government borrowing and spending that were stricter — the idea being to reduce national debt. This was done through cuts to public spending and investment.
But as the pandemic hit, the EU suspended these rules – known as the Stability and Growth Pact (SGP) – to allow EU countries more flexibility in handling the economic fallout.
The research from the New Economic Foundation found that previous austerity measures have left Europe more vulnerable to economic shocks from COVID-19 and the crisis sparked by the war in Ukraine.
If the cuts had not been so severe, it says €533 billion would have been available for EU governments to spend on infrastructure projects, including green ones, which the study says could have helped cushion the impact of spikes in energy prices.
But Antonios Nestoras, interim executive director of the European Liberal Forum, told Euronews the findings of the report do not give a balanced perspective and fail to take other important factors into account, adding that public spending levels can only be effectively managed once a foundation of wealth in society is created.
“We need to create wealth. We need to give citizens a level playing field, the corporations a level playing field to create wealth,” Nestoras explained.
“We need to create smart regulations in order to support innovation, research, development, industry, technology. These are the things that we should be focussing on and then we can play with public spending levels and trying to control inflation and trying to create macroeconomic stability based on public spending and so on.
“As long as we’re not focusing our efforts on creating wealth, where is the money going to come from? This is a question that is not answered by this report and by public policies in general.”
‘A long term approach’
The European Commission will present its plans next Wednesday on its new fiscal guidelines once the suspension of the rules pact is concluded at the end of 2023.
At the moment, the proposals are being kept under wraps, but for Sebastian Mang, a senior campaign officer at the New Economics Foundation, spending rules need to be relaxed in the future.
“Amid the COVID-19 crisis, the European Commission was authorised to borrow from financial markets for the first time to fund its response,” Mang told Euronews.
“But rather than relying on ad hoc responses to each new crisis, what Europe needs beyond 2024 is a long-term approach that is fit for purpose. Austerity economics was a failed experiment. Low levels of gross domestic product (GDP) growth led to a fall in tax intakes for governments, increasing government debt.
“National governments should be empowered to invest in public services, such as health and education and in cutting carbon emissions. For its part, the European Commission should be equipped to support national spending through European borrowing.”
Nestoras, on the other hand, said a balance must be found when it comes to EU fiscal rules.
“We have to find the right balance in those things,” he told Euronews. “The real politics is finding the right balance, the golden ratio between opposing forces, opposing political and ideological forces. I have trust that the system that we have created in Europe will find a compromise between the two.”
The NEF and Finance Watch study argues as well that countries that pursued greater austerity and public spending cuts, such as Greece and Italy, in fact ended up with higher government debt levels.
Disparities were also found on the impact measures had on disposable income. German wages only dropped by 1% compared to before the financial crisis, while in Ireland and Spain, some of the hardest hit countries, average incomes fell by 29% and 25%.
Berlin, known as one of the most frugal EU member states, was a main proponent of austerity and cutbacks at the time.
It has recently been able to afford a €200 billion aid package to help German people and businesses through the current energy crisis, much to the annoyance of other member states that cannot afford to do so on such a large scale.
Polling included in the report found that 70% of people are concern by what might happen if austerity is reintroduced. At the same time, 70% of respondents also reported concern about rising government debt.
However, one thing people asked were certain about was the need to invest further in vital public services like education, health and social care.
Data from the NEF and Finance Watch report came from Eurostat and citizen polling was conducted by Censuswide.