With deep cutbacks in government spending looming and conservatives pushing for reduced expenditures on Social Security and Medicare, the United States need only look across the Atlantic Ocean to consider the consequences.
Three years of austerity has devastated Europe.
The region is engulfed in a political, economic and social crisis, struggling with record unemployment, rising homelessness, increasing inequality, low and even negative growth, an erosion of health-care and other public services, and reduced pensions.
Cutting taxes and slashing spending during a period of weak economic growth has only made the region’s economies worse. Decades ago, of course, economist John Maynard Keynes warned against doing that, but European policy makers chose to follow the dictates of international bankers instead.
Do we really want this in the United States?
Polls show a majority of Americans oppose cuts in government services, Medicare and Social Security. But many of the Washington elite and their misguided conservative supporters do—and they are driving the debate over the role of government in our society.
On a positive note, President Barack Obama did express concern in his State of the Union Address on Feb. 12 that deep automatic spending cuts scheduled to begin March 1 could set back the U.S. economy’s recovery and warned against ideologically-driven budget reductions.
While Obama didn’t mention the economic crisis in Europe, the austerity experiment there is a clear warning that if the U.S. government follows the European public policy prescription, we could be headed for a deep economic malaise and further downward social mobility after many of us hoped his re-election would put a stop to decades of stagnating and falling wages. An attack on our public sector would put us over a fiscal cliff.
Let’s look at the dismal track record of Europe’s austerity:
• Greece and Spain, where unemployment is close to 25 percent, are struggling with depressed economies.
• The women’s employment rate in 22 countries is back to 2005 levels, way below the European Union’s goal of 75 percent employment in 2020.
The drop in employment has resulted from policies that have cut public sector jobs and wages, reduced services and benefits and slashed funding for women’s rights and gender equality, according to the European Women’s Lobby.
• Youth unemployment in Europe was 36.6 percent (or 19.5 million people) in 2011, the worst on record, according to a study released in October by the European Foundation for the Improvement of Living and Working Conditions (Eurofound), an autonomous body of the European Union. Youth unemployment has reached over 50 percent in Spain and Greece.
“The consequences of a lost generation are not merely economic, but are societal, with the risk of young people opting out of democratic participation in society,” the report said.
•Gross disposable income has declined in most European Union countries since 2009.
• “Economic suicide” is a new term in the European lexicon. Studies show that for every 1 percent rise in the unemployment rate, the rate of suicides goes up by 0.8 percent, according to Silvana Enculescu, communications manager at Mental Health Europe.
• The Gross Domestic Product of the Eurozone is expected to contract this year, according to some forecasts. Growth in the leading economy of the region, Germany, is even expected to be flat.
• As wages fall and job losses occur, homelessness is on the rise.
Service providers estimate the demand for homeless services has increased 25 to 30 percent in Portugal, Spain and Greece since the onset of the crisis, according to a report by the European Federation of National Organisations Working with the Homeless. Homelessness is up an estimated 10 percent in Europe’s strongest economy, Germany
“These increases in homelessness reflect increased unemployment and loss of income which mean more people have difficulty meeting housing costs,” the report says. “At the same time, austerity budget cuts are diminishing capacity to respond to homelessness.”
So, how did we get here?
Since the financial crisis of 2008, European countries have embarked on a path of austerity, selling off public assets, reducing collective bargaining rights and the power of unions, cutting pensions and slashing government services.
Governments adopted austere policies as they came under from the financial sector to reduce their debt obligations.
In March 2010, the Organization for Economic Co-operation and Development (OECD) recommended that Europe adopt a program of austerity for six years. The Financial Times called the proposal “highly sensible.”
Some critics believe the financial elite and their political allies, led by Germany Chancellor Angela Merkel, exaggerated the threat of the debt crisis to carry out an agenda of smashing the welfare state.
But “labor flexibility” and “structural reforms” have failed to jump-start troubled economies like those of Greece, Spain, Portugal and the United Kingdom. Instead, the region now grapples with 11 percent unemployment and depressed economies.
The European Union’s budget policies of cutting in health care, public pensions, education and other social services have led to falling income, which has hurt demand in the private sector.
There is growing frustration in the Eurozone that individual countries have insufficient control over their own economies since their use of the euro means they don’t have the option of devaluing their own currency. Instead, they are left only with the policy of gutting the public sector.
As Europe continues down the road to austerity, dissident voices are speaking out more forcefully. “We want to get the message across that austerity kills,” said Gabi Zimmer, a member of the European Parliament, in an article on publicserviceeurope.com. “Too often we hear of policies and measures that promise 'stability', but we need to ask the question: who is this stability for? Stability for banks and the financial sector--the main drivers behind the financial crisis.
Anti-austerity demonstrations swept Europe on Nov. 14, a sign that ordinary people are getting fed up with the relentless assault on their living standards.
In January, the presidents of the medical associations in Spain, Ireland, Portugal and Greece expressed their alarm over inadequate funding for health care that they said has caused “extensive and deep human suffering” and “an increased number of situations that defy our ethics and basic notions of human dignity.”
Their statement, signed also by leading figures in the medical and academic communities, called upon governments to adopt policies to “prevent further deterioration of health and health services.”
A health-care crisis. Homelessness. Rising inequality. Mass unemployment.
The track record of Europe’s experiment with austerity is a warning to the United States not to go down the road to economic and societal malaise.