Greece, Spain, Italy... Saving into collapse? - European Economic Policy in Crisis

Achim Truger (IMK): Warning against hectic budget consolidation

Achim Truger of the Macroeconomic Policy Institute at the Hans-Böckler Foundation presents the result of the study “Alternatives of Budget Consolidation after the Crisis”, which had been commissioned by the Austrian Chamber of Labour. Apart from a general analysis regarding the impact of fiscal policy, the study deals with the case study of two countries, one of which gives an example for a successful (USA at the beginning of the nineties)  and a failed (Germany 2001-2005) consolidation. The overriding message for Truger is that fiscal policy always shows real economic, Keynesian effects. Hence, consolidation policy in the crisis has a dampening effect on growth. As a result, the following conclusion may be drawn for Austria: a consolidation strategy, which does not harm distribution and macroeconomic policies, must take place with great care. Truger does not see any reasons for Austria to undertake a hectic budget consolidation: one should first wait for the boom in order not to endanger any economic recovery. Concerning Europe, the author of the study states: if consolidation already shows a negative impact on the growth in some countries, it would be fatal to make such recommendations across Europe. Saving in the crisis might result in deflationary stagnation.

Georg Busch (DG ECFIN): Europe is in a crisis of public debt

Georg Busch of the European Commission remarked that a consolidation of the budgets of individual Member States might certainly result in a differentiated approach. Some states are able to take more time than others. Busch, however, warned that the deficits in the individual Member States were generally too high. He commented that Europe was currently in a “crisis of public debt”. The crisis had shown that the individual Member States were not in a position to cope with their national debt without help. He stated that the Stability Pact had not been able to discipline the states and the market had now assumed this role. In particular as there was now a common currency for so many Member States, fiscal policy would play an even more important role, said Busch. The Commission, due to the continuing crisis, has assumed a new function and is now “leading” the Member States. Personally, Busch said, he would be hoping for a more liberal regime; in his opinion, the EU should not assume the role of a “nanny”.

MEP Liem Hoang Ngoc (S&D): Rigid austerity course of the economically strong countries makes things difficult for the Eurozone

Liem Hoang Ngoc, a French Member of the European Parliament, had been a parliamentary rapporteur in the Economics Committee on the issue of “Long-term viability of public finances”.  The report had been strongly disputed between Social Democrats, the Greens and the Left on one side and the Conservatives and Liberals on the other. The Socialist Hoang Ngoc demanded above all that any government measures to support both economy and the labour market, should remain in place until the economy had shown real signs of recovery. He also said that savings should not made by cutbacks, but that the pressure on the public budget should be eased by additional taxes or tax increases. He was particular critical of the fact that those countries who had current account surpluses had adopted a far too rigid austerity course. This would put further strain on the Eurozone. Because: “Who will buy the products of southern countries if economically strong countries refuse to spend their money?”

Günther Chaloupek (Chamber of Labour): “One can win oneself to death”

Günther Chaloupek, Head of the Economic Research Department at AK Vienna follows a similar line. The example of Japan would show that such a high current account surplus could be harmful in the long-term and that it might lead to years of stagnation. Such an uncompromising export orientation as it was practiced by Germany, but also by Austria and the Netherlands would therefore have a damaging impact on all participants: “One can win oneself to death”, remarked Chaloupek with regard to the ongoing competition who would be the “Export World Champion”. Countries with high current account surpluses should urgently strive towards a balanced trade balance. Regarding the budget consolidation, he pleads for a careful approach. In particular, countries such as Austria, whose debts have not yet reached threatening proportions, should not start cutting their expenses too early in order not to put a recovering economy at risk. Any savings should be made by making the tax system fairer and by removing privileges for large fortunes in order increase revenue while easing the burden on the less well off.

Michael Dauderstädt (Friedrich-Ebert Foundation): Germany must reduce current account surpluses

Michael Dauderstädt of the Friedrich-Ebert Foundation appealed to the Member States with current account surpluses to increase wages in order to achieve an even-handed trade balance again. The net lending/net borrowing at EU level, said Dauderstädt, would clearly demonstrate that budgets and the financial sector had shown a financial surplus over the past years. Enterprises in turn would incur debts in good years, whilst holding back during an economic downturn. The state, however, incurs high debt in particular in times of a weakened economy. Based on the net lending/net borrowing, however, it would be possible to balance the budget by the financial sector and/or by the budgetary sector reducing their surpluses or if enterprises would start to increase their investments again. In his opinion, Germany's current account surpluses have financed the debts of the others. The right path for Germany now would be to accept current account deficits in order to balance her current account surpluses, which were built up for years. Dauderstädt comes out in favour of the model of social growth; wage increases would be the decisive factor. Of particular importance would be an increase in consumption. In contrast to the current situation, this would enable Germany to achieve budgetary surpluses.