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Understanding Europe’s Austerity Blues

photo by William Murphy via Flickr 

Since 2010, austerity measures in Europe have spurred unrest, slashed government budgets, and given rise to new leftist political movements.

But what exactly is austerity?

In short, the term means:

“A state of reduced spending and increased frugality in the financial sector…generally [referring] to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.” – Investopedia  

Austerity measures are currently being instituted by a number of countries in the European Union that continue to find themselves in dire economic straits.

These countries include: Portugal, Spain, Italy, Ireland, and Greece.

More recently the topic of austerity has resurfaced in relation to growing anti-austerity movements in both Greece and Spain–the latter of which has seen its capital flooded by tens of thousands of anti-austerity protesters.

So, what has so many European citizens storming the streets (and elections)?

The Dawn of Austerity

Austerity can be instituted for a number of reasons. Though countries like Greece and Spain are usually the focal point of austerity measures–since they are two of the most extreme cases–the European Union as a whole has used some form of austerity since the start of the European financial crisis in 2010.

A perfect example of just how extreme austerity can get is exemplified by countries like Greece, who even before the European financial crisis had a long history of defaulting on national debt as well as consistent overspending.

After a weakened Europe Union threatened to collapse an already fragile Greek economy, Greece accepted $272 billion in bailout from both the International Monetary Fund and EU.

With this money came certain conditions, however:

  • Greece was to undergo massive public spending cuts
  • Taxes were to be raised significantly
  • Greece’s spending was to be monitored
  • $107 billion (53 percent) of Greek debt was written off

These conditions were instituted in hopes that they would reduce Greece’s debt to GDP ratio, thusly pulling them out of their critical economic state.

Why Greeks hate austerity measures

greekunemployment

In the countries where austerity measures have been the most drastic (i.e. Greece and Spain), citizens are fed up.

Despite the injection of over 270 billion euros of bailout money, unemployment still hovers at around 25 percent (a number which jumps to 50 percent in regard to youth unemployment) and austerity induced-tax hikes still cripple Greeks struggling to emerge from the impact of their economy’s near collapse.

Additionally, government support to the public sector was cleaved by austerity, resulting in a 25 percent budget cut to hospitals between 2009-2011.

This cut, in tandem with unemployment, has resulted in at least 2.5 million uninsured Greeks in 2014.

GreekGDP

The personal toll may be just the tip of the iceberg. Austerity has also had little impact on reducing Greece’s debt-to-GDP ratio, which has spiked to 175 percent in 2014 (up from 170 percent in 2010). This trend is also shared by Greece’s austerity counterpart, Spain.

Even the IMF, which was integral in drawing the blueprints for European austerity measures, has admitted to severely underestimating the economic damage their plan has caused.

On the other side of the coin, those in the European Union feel the Greece has been ungrateful. Contending that the European Union has picked up the bill for Greece’s corruption and fiscal irresponsibility.

The takeaway

Unrest over the efficacy of austerity has more recently lead to the rise of anti-austerity parties–some of whom are beginning to gain traction.

In Greece, the leftist party Syriza headed by Alexis Tsipras swept elections, and has pledged to put an end to austerity measures in the country.

Likewise in Spain, the anti-austerity party Podemos has gained significant support by voters.

In an effort to garner support for his anti-austerity movement, Tsipras has begun meeting with other foreign leaders in the EU like France’s Francois Hollande–a trend we may see more of in the future.

At this point it appears that austerity-stricken Europeans may be intent on putting an end to cutbacks once and for all.

We measure success by the understanding we deliver. If you could express it as a percentage, how much fresh understanding did we provide?
James Pero