The Time to Challenge Austerity

Posted by feps on 04/02/13

Ernst Stetter and Giovanni Cozzi (Economic Advisor at FEPS)

Europe needs to abandon its focus on austerity in order to overcome the recession and to build modern and effective economic governance!

This call has now been embraced by several leading politicians across Europe. From President François Hollande, who campaigned against spending cuts and in favour of tax increases for the rich, to the current Prime Minister of Belgium, Mr. Elio di Rupo who, interviewed by the Wall Street Journal, stated that “if the euro-zone economy doesn’t pick up by midyear, it is time to challenge the austerity-driven approach that has prevailed during the financial crisis” (The Wall Street Journal, 25 Jan 2013).

Through “Renaissance for Europe” and other initiative, FEPS has been advocating for the re-engagement of progressive leaders and citizens in a political discussion about the state of the Union and the desired direction of European integration. Thus, we really welcome this latest call by Prime Minister Mr Elio di Rupo.

The electoral campaigns in three of the founding states of the EU, namely in France last summer, in Italy this coming 24th and 25th of February, and Germany this autumn, have sparkled the debate on the future direction of Europe among progressive leaders and have given hope for the strengthening of a democratic Union of peace, prosperity, and progress.

There is a growing belief among progressive European leaders that a policy framework alternative to austerity is possible. Indeed, it has become increasingly evident that the current austerity framework is not helping the recovery of Europe and that Europe needs to shift towards more progressive economic and social policies.

To this end, economic policies at EU level should be more cohesive and better balanced, paving the way for new ways to strengthen and enhance the EMU. In addition, the European Union must be equipped with a more solid budgetary capacity to finance investments and to achieve an employment-focused economic recovery. These policies should be further supported by a solid set of social policies promoting equality and solidarity.

In order to achieve these objectives it is indispensable to safeguard a social agenda of public investment and to create incentives for the financial sector to step-up its investments real-economy activities. Now that banks have started deleveraging and paying back ECB-loans (link), is time to establish an effective regulation of global financial markets and to identify new tools to regulate the growth and compositions of financial sector liabilities (See Eatwell, 2013).

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