A Future With No Safety Net? How Brutal Austerity Cuts Are Dismantling the European Dream
The European Union (EU) has asked its citizens to brace for further economic misery. In a report on European economic prospects released on May 3, the European Commission said that further deterioration is expected to last at least until 2015. But, as every such report says, things will then get better.
Unemployment in the euro area is expected to climb to 12.2 percent this year, up from 11.4 percent last year. In Spain, unemployment will rise to 27 percent, up from the 25 percent of last year; in Portugal it will rise from 15.9 to 18.9 percent; and after three brutal years of suffering, in Greece it will climb by 2.7 percent to 27 percent.
The trend will be devastating for young people: in Spain alone, it is estimated that 52 percent of young people will be without a job. We are creating a generation that will probably never get back on track.
The same trend is also unfolding in the rich countries of northern Europe. The German economy is expected to grow this year by a mere 0.4 percent, and from Austria to the Netherlands, the picture is one of decline.
This crisis is sapping the foundations and the identity of Europe. Since the end of the Second World War, Europeans have come to expect a social safety net that would cushion the less fortunate until they were able to spring back to work and dignity. Compared with the American dream, in which anybody could achieve the highest economic and social status through individual effort, without meddling by the state, the European dream was very different.
Now, however, most economists agree that this dream has become very distant because there is no way that the economy can lift that many people any longer. In Europe, austerity is eliminating the social safety net.
But while the United States and Japan have taken the road of economic stimulus, injecting massive quantities of money into their systems every month, and already with some visible results, Europe has taken the opposite direction. The European policy is to cut public spending and raise taxes simultaneously as the recipe for eliminating deficits. And, despite clearly available facts and the declarations of some accepting the need for growth, this policy is not changing.
Besides losing its gloss, the EU is fostering a growing resentment. On the same day the European Commission report was released, the strongly anti-Europe United Kingdom Independence Party (UKIP) registered a major success by taking 25 percent of the votes cast in local elections in the United Kingdom. Similar parties are sprouting everywhere, from Belgium to the Netherlands, from Austria to Finland. And, for the first time, a similar party in Germany is now running on a platform to leave the Euro.
The lack of effective leaders who are up to the task is allowing the cracks in Europe’s foundations to grow. In Spain, Prime Minister Mariano Rajoy enjoys a comfortable majority in parliament but is vilified every day by demonstrators throughout the country. In France, President FranÃ§ois Hollande also enjoys a solid majority but he now has the approval of only 25 percent of the electorate. Portugal has an almost identical situation, Greece has a very strong anti-austerity and anti Europe party and Italy has a new government with an uncertain future.
Few realise that Italy is a special case of malfunctioning and lack of synchronism with Europe. The end of the Cold War led to the death of the modern Italian political parties, which were created and fuelled by the Cold War: the Communist Party and the Christian Democratic Party.
But in the creation of a new political system, an unparalleled event took place: Silvio Berlusconi, the richest man in Italy, with a powerful media empire, decided to enter politics to escape personal economic and judicial problems. He became a deft politician and ever since Italy has been split between pro-Berlusconians and anti-Berlusconians.
This latter camp has brought together the entire centre-left and left, and is unlike other European left-wing parties such as the Labour Party in England, the Social Democrats in Germany and the Socialist Party in France. Those parties predate the end of the Cold War, and were not built to counteract a one-person party like Berlusconi’s People of Freedom Party. Out of this anomaly has emerged a new Italian political “party”, the Five Star Movement, again led very personally by a comedian-turned-politician, Beppe Grillo, which is also totally asynchronous with Europe. Until Berlusconi retires, Italy will remain split over him, and all elections will be inconclusive and bring no real political agenda to the centre of debate.
If the old generation of German pro-European leaders, like Helmut Kohl and Helmut Schmidt, were still there, it would probably try to educate the Germans on the values of Europe for Germany. Germans are deeply convinced that they should not put their wallets at the disposal of southern Europeans who work less, try to avoid paying taxes, have spent beyond their means and, instead of swallowing the bitter medicine, expect Germans taxpayers to bail them out.
But a study last year by the Kiel Institute for the World Economy found that, in 2011 alone, Germany was able to save the equivalent of 11.1 billion dollars. This was because it could borrow money at much cheaper rates than southern Europe. And last month, a study by Germany’s Bertelsmann Foundation claimed that to leave the euro would cost Germany the equivalent of some 1.6 trillion dollars over 13 years.
The whole of Europe is waiting to see what will happen in the September elections in Germany. The Social Democrats are less pro-austerity than Chancellor Angela Merkel, but in all probability she is going to win. Will she then change her stand against everybody, including even the International Monetary Fund, which is decrying the excesses of austerity? Nobody knows, but many hope.
Meanwhile, the world is not stopping to give Europe time to solve its internal weaknesses. Just read the report of the U.S. National Intelligence Council on global trends. Among others, the U.S., European and Japanese share of global income is projected to fall from 56 percent to 26 percent in 2030. Any further European decline would hasten those projections. So, time is not on Europe’s side.