Austerity backlash shows the need for EU debt mutualisation
by Phillip Souta
Without structural reforms to the eurozone and plans to stimulate the private sector, attempts to move beyond the crisis will come to nothing - warns campaign group
The current focus on austerity is causing a severe political backlash across Europe. Without structural reforms to the eurozone and plans to stimulate the private sector, attempts to move beyond the crisis will come to nothing. Nobody is arguing that Europe should return to the debt fuelled excess of the last decade. The speed and depth of the cuts that Germany is insisting upon, however, is causing a real social and political backlash from France to the Netherlands and across the continent.
The danger of allowing this backlash to get worse is great; this is why Germany should also insist on wider reforms to encourage private sector job creation. At the same time, Germany should be willing to put reform of the euro on the agenda. April saw shockwaves pass through Europe as Marine le Pen of the National Front won 18 per cent in the first round of the French presidential elections. We also witnessed the fall of the pro-austerity government led by Mark Rutte in the Netherlands.
With a double dip recession in Spain - where unemployment is setting new records - and Greek elections on Sunday likely to deliver a bloody nose to mainstream parties, many are asking themselves whether Europe is striking the right balance. The United Kingdom's vulnerability to deterioration in the eurozone was also demonstrated by the return to double-dip recession in April.It is not just western Europe that is seeing a simmering rebellion against aust erity. The Czech government is unstable, as one of its coalition partners has been rocked by allegations of corruption. And high food inflation combined with the drive to get the deficit below 3 per cent, in 2013, has sapped the government of public support. In addition - the Romanian government fell after just two months in office, with new elections slated for November.
Meanwhile, in Austria, the Freedom Party led by Heinz-Christian Strache is also riding a wave of popular discontent. Only Germany has avoided a rise of the far-right, with opposition being funnelled into the anti-establishment pirate party. Germany has already shown willingness to compromise by indicating that it is happy to see greater funds pumped into infrastructure spending via vehicles like the European Investment Bank. More fundamentally, however, the euro in its present state is unsustainable. Without some level of debt mutualisation, as suggested for example by the German Council of Economic Experts, or a comprehensive European bank resolution scheme - markets will continue to undermine weaker eurozone members.
Phillip Souta is director of Business for New Europe, a British campaign group