The cruelty of EU austerity

Brussels is punishing the poor simply because it can

By Thomas Fazi
November 9, 2021

Much has been said about the supposedly “unprecedented” fiscal measures deployed by the EU during the pandemic. This was supposed to be the start of something new: the birth of a new post-austerity era.

But, although it seems to have slipped the minds of the EU’s finance ministers at their meeting yesterday in Brussels, the truth is that the scope of the bloc’s support package has been wildly overblown. The IMF puts the EU’s discretionary fiscal stimulus at a paltry 3.8% of GDP — a figure dwarfed by the massive discretionary fiscal stimulus of 25.5% of GDP in the US.

The same chasm between narrative and reality can be seen with the much-vaunted Europe-wide “recovery fund” known as Next Generation EU (NGEU). Despite the fanfare, it amounts to barely 5% of the EU’s GDP. What’s more, the funds will be disbursed over the course of six years, resulting in, at best, a fiscal expansion of around 1% of GDP on average between 2021 and 2024. And that’s compared to a GDP loss for the EU as a whole of around 15% just in 2020.

Predictably, the funds come with very strict troika-like conditions attached. They are conditional on compliance with the European Commission’s infamous country-specific recommendations, which in the past have consistently demanded that governments cut public spending — especially on social expenditure (particularly pensions), healthcare and unemployment benefits. This is ultimately what the NGEU is all about: increasing Brussels’s control over the budgetary policies of member states and strengthening the EU’s regime of technocratic and authoritarian control. It’s the EU doing what the EU does best.

So overall we can say that the pandemic has not resulted in any radical rethinking of policy at the European level. Neither has it resulted in any structural change. Indeed, the old fiscal rules are set to be reinstated in 2023. Even though there’s much talk of “reforming the EU’s fiscal rules”, the truth is that everyone knows that serious treaty reform is off the table — as Valdis Dombrovskis, executive vice president of the European Commission, has repeatedly stated.

It’s not just the opposition of the so-called frugal countries — the Netherlands, the Nordic countries, the Baltics and Austria. Anyone who expects a change of heart from the new German government is also bound to be disappointed. Olaf Scholz, Angela Merkel’s successor, is, as Wolfgang Münchau has noted, “a staunch fiscal conservative, on a par with his predecessors, Wolfgang Schäuble and Peer Steinbrück, the Social Democrat behind the debt brake”.

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