Does Austerity Work? A Closer Look at Europe’s ‘Success Stories’ Says No

Does Austerity Work? A Closer Look at Europe’s ‘Success Stories’ Says No
A protestor shouts slogans during a “Dignity March” to protest against austerity in Madrid, Spain, Nov. 29, 2014 (AP photo by Andres Kudacki).

Greek Finance Minister Yanis Varoufakis was in Brussels on Wednesday for an emergency meeting with 18 other eurozone finance ministers about his country’s bailout. It is just the latest sign of how the victory of the radical left, anti-austerity Syriza party in Greece’s election last month has dominated the European Union’s agenda. But with all the attention currently on Greece’s attempt to restructure its debt plan, it is easy to forget the other countries subjected to strict austerity measures by the troika of the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF), including Portugal, Spain and Italy.

The EU is keen to highlight the early benefits of reforms implemented under austerity in those three countries. But as The Economist pointed out: “Assessing the scale and effectiveness of reforms is hard, not least since they tackle a multitude of sins.” Moreover, progress is easier to achieve when the starting point is already quite low, as it was in all three countries.

Consider Spain. Facing a banking collapse in 2012, Spain received a $50 billion EU bailout, which many credit with stabilizing the Spanish economy. However, Spain’s public debt, which was already at 92 percent of GDP in 2013, is expected to rise to 102 percent by 2016. And although the economy is still projected to continue its recent slow growth, with the Spanish Finance Ministry predicting 2 percent growth this year, there are other problems. Employment numbers went up in 2014 for the first time in six years, thanks to unpopular belt-tightening reforms that gave employers greater control over setting wages and limiting severance packages, but that barely put a dent in the country’s labor crisis. Unemployment in Spain remains at an alarmingly high 24.8 percent.

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