EU’s austerity must not hurt economies

European Union’s (EU) austerity measures have divided Europe as many member states are calling for relaxing these to address domestic concerns. While the goal of austerity is to reduce government debt through reduction of government spending, their effectiveness remains controversial.
But with EU economies once again facing stagnation and unemployment persisting at record highs while Gross Domestic Product (GDP) in many countries remaining below pre-recession levels, calls for austerity measures cannot be simply brushed aside. Yet, critics argue that the growing debt mountain proves the policies to rein in spending have failed miserably.
According to the European Union’s Maastricht criteria, EU member states may not have a budget deficit that exceeds three percent of their Gross Domestic Product (GDP) or a national debt that exceeds 60 percent of the GDP.
It goes without saying that austerity measures can be contentious for political and economic reasons. Popular targets for spending cuts include pensions for government workers as well as welfare and government-sponsored healthcare programmes that affect low-income earners at a time when they’re financially vulnerable. Many countries are finding it so hard to implement these measures without repercussions. The striking example is Greece, which saw a political crisis that toppled the government there.
Germany has been pushing aggressively for the austerity policy in EU to stem the euro area’s debt crisis. But this policy is viewed by many on the political left that it has prevented southern Europe from recovering in the wake of the financial crisis. They also feel Berlin benefits more from the euro and austerity measures than any other Eurozone member state.
Some detractors also feel Germany is forcing countries to follow policies that are weakening their economies. They contend that lowering corporate taxes and cutting expenditures is eventually putting the economies on the brink.
This sentiment has been articulated by outspoken Italian Prime Minister Matteo Renzi who said that the austerity measures were not delivering and the countries that had broken the EU deficit rule were doing well, citing Britain and Spain.
He called for a radical review of policy than creation of a collective finance ministry for the Eurozone. This should take into account reservations of member states, which feel the austerity measures could create domestic unrest and hurt economies.
Public debt in Europe is growing. Despite austerity, EU gross government debt has risen every year since the financial crisis in 2007-2008. Currently, 16 out of the 28 EU member states are breaching EU rules over public debt, with total debt burdens larger than the 60%-of-GDP limit set out in the Maastricht Treaty.
While urging Portugal’s government to take advantage of favourable conditions created by the European Central Bank as well as low energy prices to overhaul its economy, German Chancellor Angela Merkel has sent a message to EU member states to stay within the framework of solid fiscal policy.
“I think it’s important for Portugal to be able to continue on its path of more growth, more jobs and solid finances,” Merkel said on Friday at a joint press conference in Berlin alongside Portuguese Prime Minister Antonio Costa.
But Costa seeks to strike a balance that may digress from the austerity measures adopted by the EU. The Portuguese Prime Minister said he intends to reverse state salary cuts and bolster family incomes, easing the austerity measures faster than previous administration proposed, and still keep the budget deficit within the EU limit of 3 percent of gross domestic product through 2019.
Though diverting from the EU austerity measures, this balanced approach may get support from countries hurt by the EU deficit rule.
While negotiating with the United Kingdom over the EU membership, the European Commission may relax some of its regulations to address pressing domestic issues stoked by the austerity. The EU has to find a middle path where it can get around countries to curb their spending without damaging their economies. That’s a challenge which the EU has to take up and there’s no escaping it!