Europe has seen austerity, and it doesn’t work.
With governments across the continent slashing their budgets, unemployment in the 17-nation eurozone hit 10.9 percent in March, its highest level since the euro was first minted in 1999. eleven European countries — including a couple that are not in the eurozone but have nonetheless inflicted austerity on themselves, such as Britain — are officially in recession.
In Spain, unemployment stands at 24.1 percent; for those under 25, the jobless rate is a mind-boggling 51 percent. Yet Spain’s conservative government continues to cut jobs and services in compliance with the fiscal austerity pact insisted upon by Germany, Europe’s economic powerhouse, and agreed to by other European nations in December. but even in Germany, which has thrived as its neighbors have weakened, unemployment rose in April. as the export giant of Europe, Germany needs neighbors with enough discretionary income to buy its products. but so rigid is Chancellor Angela Merkel’s commitment to budget-balance-uber-alles that she may undo Germany’s economic miracle by depriving her nation’s manufacturers of paying customers.
the wages of austerity don’t stop with continental recession. they include, in some nations, the revival of the kind of political extremes not seen in Europe since World War II. Parties on the fringe of their nation’s politics have found greater support for their xenophobic, anti-immigrant right-wing appeals. Parties of both the far left and far right rail against the European Union — a stance at once understandable and deeply disquieting.
for all their shortcomings, the European Union and the cause of European unity have set the continent on an infinitely more benign course than it was on in the first half of the 20th century. the union’s flaw is that it created a single monetary policy for nations with hugely divergent economies, and continental integration deprived those nations of fiscal autonomy once the great Recession hit — a development codified by Merkel’s fiscal austerity pact.
as Greece, Ireland, Portugal and Spain have cut their budgets, investors have grown less willing to buy their bonds. By plunging themselves deeper into recession, these nations have convinced investors that they won’t become economically viable for many more years.
Italy’s technocratic prime minister, Mario Monti, who was installed to put his nation’s fiscal house in order, now argues that growth must precede austerity. the millions who marched down Europe’s boulevards on May Day concur. a mass movement for Keynesian economics is sweeping Europe.
the United States has austerity demons of its own, of course. while the private sector has rebounded somewhat from the 2008-09 collapse, state and local governments have shed 611,000 employees — including 196,000 teachers — since President Obama took office. the shrinking of government ranks high among the drags on the U.S. recovery.
the lesson of 2008 was that unregulated finance ends in disaster. the lesson of the years since is that austerity in a time of economic weakness not only perpetuates that disaster but makes it worse.
Harold Meyerson writes for the Washington Post.