On the heels of the research that blew a hole in the validity of austerity as a legitimate approach to deficit reduction and economic growth comes a pull-back in support for the policy in Europe, The Wall Street Journal reports that European Commission President Jose Manuel Barroso believes that austerity no longer has the public backing needed to work.
While that’s refreshing to hear, I’m not sure what planet he’s been living on to float the theory that austerity ever had public support in the first place. It had support of politicians and some economists and officials, but was never anything but deeply unpopular with the public and rightly so.
That’s because austerity has aggravated an already difficult economic environment in Europe, producing deep unemployment and causing suffering for millions. It hasn’t produced anything good over here in the U.S. either, as these policies, which have reduced public sector spending and employment, have made it more difficult for the U.S. to fully emerge from the recession.
Maybe I’m more cynical than the average person, but I’m suspicious of this turn about in a similar way that I’m doubting the sincerity of the International Monetary Fund, which is also urging governments to back down on austerity. I’m wondering if it’s a little more than lip service.
Also, it’s pretty ironic, since the EU and the IMF are the chief instigators of austerity. And the real proof will come if Germany eases up, because they are still the most influential voice in Europe on budgets and economic issues.
Obviously, any trimming of austerity targets will help European economies. But if they are small adjustments and aren’t accompanied by fiscal stimulus, Europe, especially the countries on the periphery, will have a long, slow slog to emerge back into growth. We’ll see if talk is followed by action…