A cautionary tale: Europe's bitter crisis of austerity and inequality

13 September, 2013 | General

By Winnie Byanyima and Sharan Burrow

Because of austerity, Europeans may have to live through the type of disastrous period experienced by Latin Americans, Asians and Africans in the 1980s and 1990s.

Europe's aggressive plans to balance the books by slashing public spending are proving to be a disaster. By ignoring mistakes from history, Europe risks repeating them. The most vulnerable people in Europe are facing an ‘austerity winter' that could last a generation.

The European Union is in a bitter crisis of unemployment and inequality that is driving economic instability and social despair. One in two working families are directly affected by the loss of jobs or reduction of working hours, according to this year's International Trade Union Confederation's Global Poll.

Already by the end of last year, more than 24% of Europe's population, 121 million people, were living at risk of poverty. We predict that number could rise by up to 25 million by 2025 unless austerity policies are scrapped and an alternative course set.

Unions and poverty relief organizations see the axe of austerity falling on the most vulnerable people much as it did in Latin America, south-east Asia and sub-Saharan Africa throughout the 1980s and 1990s. This disastrous period saw the World Bank and the International Monetary Fund (IMF) force ‘structural adjustment' – austerity by another name – upon indebted countries. Wages fell, labor rights disappeared, inequality rocketed, health and education services were lost to all but those who could afford to pay for them. It took 25 years for Latin America to claw its way back to pre-crisis poverty levels, 10 years for south-east Asia. A new report by Oxfam – “A Cautionary Tale” – describes their similarities then with Europe now. They only managed to recover prosperity by taking steps that were entirely contrary to the IMF's prescription, such as increasing rather than cutting social spending, tackling inequality, and re-building public institutions.

"By the end of last year, more than 24% of Europe's population, 121 million people, were living at risk of poverty."

 economic inequality in Europe

But the new IMF is still the old IMF. Even its own research shows that austerity is not working. While fiscal consolidation over time is certainly prudent management, the social and economic benefits of austerity policy lacks even a credible academic base. The IMF should reform its own policies to reflect practical realities.

Austerity is failing on its own terms: debts have not fallen fast enough, in some countries they have even gone up. At the same time, austerity is causing a terrible human cost too.

Globally, austerity hurts too. The IMF, for the seventh consecutive time in June, revised down global growth projections to a mere 3.1%. While we may be seeing the decline in advanced economies stall, Brazil, Russia, India, China and South Africa –the BRICS bloc of emerging countries – have become the latest casualty of falling demand due to the impact of austerity.

In Europe, the UK will cut 1.1 million public-sector jobs by 2018; twice as many women will lose their jobs than men. Greece, Latvia, Portugal and Romania have slashed their social-security budgets by more than 5%. Across Europe, health spending last year dropped for the first time in decades, real wages fell and unemployment rates hit their highest levels in a decade. Almost one in ten working households in Europe now lives in poverty.

 bank bailouts vs economic stimulus financingThe gap between rich and poor people is widening fastest inside those countries that are most aggressively pursuing these budget-slashing policies – the UK, Greece, Portugal, Spain, Italy and Ireland. One or more of these could blow out to become among the most unequal countries in the world by 2025. The beneficiaries of austerity, beyond the banks that caused the shattering €4.5 trillion public debt blow-out in the first place, are the richest 10% of Europe's population who alone have seen their share of the income pie increase.

Europe is putting its people – more accurately, the 90% outside the top income bracket – through unnecessary pain and suffering. There are clear alternatives available, such as dialogue with workers and their unions, smart targeted investment in people and decent work and a social protection floor, over the blunt knife of public spending cuts.

Winnie Byanyima is Oxfam International's executive director and Sharan Burrow is general secretary of the International Trade Union Confederation (ITUC).

Originally published by European Voice.

 austerity plunging Europe into poverty

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