The Meaning of “Austerity Measures” in the Eurozone

Global Research
Mike Whitney

The eurozone is slipping into a recession that could have been avoided. Had policymakers provided fiscal support for stricken countries in the South and guarantees on their government bonds, (as the USG does for US Treasuries) then their economies could have continued to grow while the necessary reforms were put in place. But the Troika (The IMF, the ECB, and the European Commission) decided to make the bailouts conditional on member states’ acceptance of harsh austerity measures which forced leaders to slash government payrolls, services and programs. The result was entirely predictable; economic activity began to sputter as one country after another succumbed to a vicious slump. 

So the downturn was a basically matter of choice, a self-inflicted wound brought on by poor decision-making in Brussels and Frankfurt. Anyone could see what the result was going to be because contractionary policy leads to economic contraction. Implement policies that are designed to shrink the economy, then the economy will shrink.

For the last month or so, the focus has mainly been on Spain, and for good reason. Spain’s banking system is crumbling beneath the weight of tens of billions in non performing loans generated by the gigantic housing bubble which is still deflating. Unemployment in Spain is the highest in Europe at 24 percent. (Youth unemployment is over 50 percent) Even so, Spain’s right wing PM Mariano Rajoy is attempting to reach the deficit targets demanded by the troika which will push unemployment higher while further deepening the depression. According to Der Speigel:

“The prime minister recently announced that he wants to reduce expenditures in the country’s education and health system by €10 billion. …. To meet the demands of the central government, the regions would have to slash 80,000 out of 500,000 teaching positions.”
As you can see, austerity measures and debt consolidation are only adding to Spain’s woes. Eventually, after much unnecessary misery, Spain will require a bailout, although ECB president Mario Draghi insists that this is not so.

But Europe’s problems are not limited to Spain or countries on the periphery. France’s output has slipped for a second month in a row and the pace of the decline is accelerating. The service sector is also showing signs of distress as belt tightening measures take hold and gradually reduce aggregate demand. Unemployment is edging higher as the slump deepens. According to data from Eurostat the seasonally adjusted jobless rate in France reached 10 percent in April, a 12 year high. Ballooning unemployment has led to an uptick in poverty which now affects 13.5 percent of the population.

Spanish workers stage general strike

Independent
Daniel Woolis, Ciaran Giles

British Airways said its flights were operating normally but advised passengers to check the status of their flights before heading to the airport

Flag-waving Spanish workers livid over labour reforms they see as flagrantly pro-business blocked traffic today, forming boisterous picket lines outside wholesale markets and bus garages, as part of a nationwide strike.


Unions claimed massive participation in the 24-hour stoppage protesting what they claim to be the latest dose of bitter medicine prime minister Mariano Rajoy's conservative government has prescribed to appease European Union overseers and jittery investors watching Spain's debt grow and its GDP shrink.

The unions demanded a "gesture" from the government to scale back the reforms, warning they could cause more unrest from May 1.

The government quickly said no, and downplayed the impact of the strike, which failed to bring the country to a standstill. "There is no stopping on the path to reform," labour minister Fatima Banez said.
In fact, the government will on Friday serve up even more austerity pain with a 2012 budget to feature tens of billions of euros in deficit-reduction measures.

The cuts are designed to help Spain lower its deficit to within EU limits and calm the international investors who determine the country's borrowing costs in debt markets — and therefore have a lot of say in whether Spain will follow Greece, Ireland and Portugal in needing a bailout.

There were no reports of significant violence in today's demonstration. A total of 58 people were detained and nine were injured in scuffles as the strike got under way a minute after midnight, Interior Ministry official Cristina Diaz said.

Unions are challenging a conservative government not yet 100 days old, protesting changes to labor market rules long regarded as among Europe's most rigid. Among other things the changes make it cheaper and easier for companies to lay people off and let them cut their wages unilaterally.

On the Gran Via, one of the Spanish capital's main commercial strips, a group of about 500 whistle-blowing picketers marched slowly, blocking traffic for about an hour. Police and helmeted riot police watched from the sidelines.