The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity. – Joseph Stiglitz, Asian Financial Forum, January 17, 2012
It has been a busy weekend. France finds itself with a new president, its first socialist leader since François Mitterand left office in 1995. Greek voters flocked to the parties of the anti-bailout movement with indignant enthusiasm. The liberals seem to be holding on, narrowly, in Serbia.
The true effigy burning after the elections is austerity itself, a credo that has assumed the form of biblical doctrine in the hands of German Chancellor Angela Merkel. Nicolas Sarkozy was its co-progenitor, though his failings went far beyond his dalliance with the German leader.
A change in France
That doctrine has shown itself to be flawed. Le Monde, prior to the French election on Sunday, suggested that embracing austerity was dangerous and poisonous, the sure guarantee of electoral suicide. The mood in Europe was changing towards those “drastic cuts in state expenditures, raising taxes, reforming the labour market and so on”.
Whether incoming French president Francois Hollande actually makes much difference is questionable, given his promise to also reduce debt levels and balance the books in five years. Sarkozy, for one, can hardly be said to have suffered a comprehensive defeat.
Far-right Front National candidate Marine Le Pen refused to endorse either two of the frontrunners. Hollande was, in the end, fortunate that centrist Francois Bayrou backed him on Friday. Promises have been made to raise taxes with an acknowledgment that economic growth is essential.
Greece rejects austerity
The austerity doctrine took its predictable hammering in the Greek elections, with both New Democracy and the main socialist party Pasok getting respective pastings. Austerity has been made a condition of EU-IMF assistance, not to mention the country’s ability to remain in the eurozone.
But the voters felt otherwise. Yiorgos Vrassidis, a voter who directed his ballot to Syriza, the grouping of the Radical Left, made his intentions clear. “The politicians who got us in to this mess continue to mock us,” he said. “Neither of them will do anything, all they are interested in is pulling the wool over our eyes so they can get into power again”. The bailout has been termed everything from being “barbaric” to constituting an “economic Fourth Reich”.
Alex Tsipras, Syriza’s leader, has vowed to do something that will shake Brussels to the core – suspend the servicing of Greece’s debt altogether, and add a “pro-growth” clause to the repayment arrangements. But the options presented to voters, according to the Greek left-liberal newspaper To Vima have merely suggested that the country’s politicians have run out of ideas. Lies are in ample supply, even if the money is not.
Greece has two options: abide by the wishes of the creditors (the austerity credo), which will reduce it to a rump state economically on par with Romania or Bulgaria; or abandon the program altogether, which would lead to an even greater shock.
German paper Der Spiegel is steadfast in its glumness. “It’s clear that there is no alternative to austerity.” The Greeks may find, however, that there is no alternative but to leave the eurozone.
A slow death
There is little need to speculate too much about where things will go with such notions as the fiscal pact Merkel has endorsed, or the technocratic gospel that holds sway over budgets.
The Germans are not going to be budging on the issue, and Hollande, while he may well prove to be a difficult customer, will probably reach a middle ground with Berlin. The Franco-German approach to debt reduction will not alter dramatically – neither side wants to lose face.
This will bode ill for Europe generally. A tight pocket is not necessarily the most feasible one and constrained spending has shown itself to be disastrous when projects to stimulate growth are desperately needed. The institutional arrangements for the euro, for one, were not sound to begin with, and its fracturing has been unsurprising. Cost cutting something that is shrinking has suicide written all over it, but it is a suicide that European governments have been propelled towards for some time now.
The electoral reality shows that austerity has been willed a slow death, but so have the victors who have profited from voter dissatisfaction. They are only bound to disappoint.
As the Nobel Prize-winner Joseph Stiglitz notes: “Politics is at the root of the problem.”