Austerity in Europe: why repeat history’s mistakes?

Today, we launch a new paper that uses the lessons from Africa, Latin America and South East Asia to warn against aggressive austerity programmes in Europe. Krisnah Poinasamy, one of the authors of the paper, explains more.

One of the fortunate things about working for a seventy year-old international development NGO is the wisdom that comes with age and a global outlook. The institutional ability to look back, take stock and avoid making the same mistake twice is priceless. Our colleagues from Indonesia, Latin America and Uganda know the sort of austerity Europe is now experiencing – they’ve seen it before – it’s the modern-day structural adjustment. And they know what comes next.

Austerity is not delivering

In plain English, austerity is a policy solely focused on reducing government budget deficits, at all costs, and it comprises a mixture of spending cuts or tax increases. The theory being that a plan to aggressively lower government spending will lead to lower taxes and therefore greater spending power, giving confidence to markets, which in turn creates jobs and growth. Across Europe countries have overwhelmingly favoured spending cuts over tax increases. In the UK, for example, for every 15p of tax increases, there are 85p in spending cuts. Regrettably most countries have balanced the books by hitting the poorest hardest, both through deep cuts to social expenditure and through regressive taxation measures. Oxfam has seen in the communities it works with in the UK and across Europe the profound impact this has on families, children, the vulnerable.

And in most cases, austerity still has not delivered on its own promises. In the majority of countries implementing aggressive austerity measures, there has been little or no growth, whilst deficits are rising in Greece, Spain and Portugal. In other countries, the first shoot of growth is being heralded as evidence that austerity worked. But as we previously noted, growth is by no means a useful indicator for an entire economy. The only thing that austerity delivers is decimation of public services and reductions in social protection; with an almost certainty that the poorest will suffer.

Some of us are tightening our belts a few more notches than others

(You know, those others with more expensive belts…)

The results of austerity are deeply worrying. In the UK, austerity is expected to lead to the poorest tenth of the population seeing a 38 per cent decrease in their net income over the period 2010-15. By comparison, the richest tenth will have lost the least, comparatively, seeing a 5 per cent fall in their income.

This is mirrored across Europe. Since 2008, in countries most affected by austerity – Greece, Italy, Portugal, Spain, the UK – either the richest are now taking a bigger share of income or the poorest are taking a smaller share, or both. Bear in mind, across Europe, the top tenth (about 50 million people) already share 24 per cent of total income, whilst the poorest tenth share an appalling 3 per cent. Even during rosier economic times, the richest knew how to ensure they took a bigger share of the pie.

Meanwhile, the poorest are suffering. Spending on social security and public services has dropped dramatically, meaning that the support to help those who have fallen on hard times is being eroded. People are living on less as real wages have fallen fastest in countries implementing harsh austerity measures. When wages and social security are falling, it’s small wonder that record numbers are visiting food banks. All of this is occurring during times of exceptionally high unemployment – especially youth and long-term unemployment. Women across Europe are facing what has been called a triple jeopardy – loss of jobs due to public sector cuts, loss of services and social security.

Let’s learn our lessons

None of this is new. Structural adjustment offers a window the future. It reminds that the poverty rate can increase over 8 pecentage points in a decade, as it did in Latin America between 1980 and 1990. It tells us that austerity will cause poverty and inequality to increase. And it tells us, it will be a decade-long winter.

Europe is already heading down this path. Poverty is rising. In fact, it could increase by between 15 to 25 million people across Europe. Far from a brief storm that needs to be weathered, our experience of the 80s and 90s tells us it could take up to 25 years for living standards to return. And after it all, Europe many European countries could soon rank amongst the most unequal in the world.

Let’s put away the champagne

Growth doesn’t mean that austerity has worked. Instead of staying the course, we can heed the experiences of the past and learn lessons from abroad. We need to protect the poorest rather than resign ourselves to a future where the next generation will struggle to meet the living standards of their parents. –Krisnah Poinasamy Economic Justice Policy Adviser, UK Poverty Programmme