May 21, 2013
The Confirmed Insanity of Austerity
Posted on Mar 19, 2013
Austerity threw the 17 countries that use the euro back into recession in the third quarter of 2012. As a result, unemployment is expected to rise 12.2 percent, leaving half of young people in Spain and Greece without jobs, and public debts—the expressed target of the reductions—are growing as well.
Despite “unacceptably high levels of unemployment,” unelected President of the European Commission Jose Manuel Barroso recently said that “reform efforts [i.e., austerity] of member states are starting to bear fruit.” Exactly where that fruit is is not clear, especially to the 26 million Europeans who are out of work.
Paradoxically, a recent paper by economists Luc Eyraud and Anke Weber of the International Monetary Fund demonstrates that austerity and budget cuts intended to reduce debt levels will increase debt-to-GDP ratios in the short term. Another paper by economists Paul De Grauwe and Yuemei Ji finds that countries that embraced austerity most forcefully experienced the greatest declines in their GDP, and that greater austerity led to larger subsequent increases in the debt-to-GDP ratio.
Promoters of austerity have yet to say exactly how populations are supposed to recover when tens of millions of Europeans are unemployed and without the safety nets necessary to remain alive and well, and how national debts are supposed to be paid when those workers cannot contribute tax revenue.
—Posted by Alexander Reed Kelly.
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