People in the eurozone have had enough of austerity. The new French president's talk of growth is music to their ears. But the question is: How do you create growth without going into debt?
Since 2007, the Greek economy has shrunk by about a fifth. No wonder, then, that despite all its austerity measures, cuts and savings Greece's national debt will rise again next year, to 160 percent of gross domestic product (GDP). Many people believe that the country that sparked off the debt crisis is the best example of the failure of German Chancellor Angela Merkel's crisis management, which has primarily focused on budget consolidation.
The German Social Democrat politician Gernot Erler commented on German radio that the results of recent European elections illustrate that this opinion is widespread. “The policy of austerity has repeatedly been voted out, or else has failed, as for example in the Netherlands, Romania, Greece and France.”
Growth is the new buzzword
The presidential election in France has been particularly influential in altering the European discourse. “Austerity” is out - “growth” is in. This has not gone unnoticed in Berlin. The federal government recently even presented key points for a new growth package. These state that the key to growth is greater competitiveness, and that structural reforms are needed in order to achieve this. To put it more clearly: There will be no more money.
The opposition's response is to yawn demonstratively and describe the government's declaration as pure rhetoric, because greater competitiveness means more wage cuts. What's more, structural reforms will ensure a more flexible job market which is generating even higher unemployment in the countries worst affected by the crisis. Yet the German government has also made some concrete suggestions: for example, claiming money from the European Investment Bank and from EU Structural Funds.
The so-called Structural Funds and Cohesion Fund, which are intended to be used to balance out development disparities in the EU, now have a considerable sum at their disposal. “Many member states have applied for money in recent years, and their applications have been approved,” says Alexander Alvaro, Vice-President of the European Parliament. In the end, however, as Alvaro told DW, the monies were not claimed. “As a result,” he says, “there are currently 250 billion euros of accumulated claims.”
One might suppose that the crisis-hit countries are not even capable of taking the money that is offered to them. Another possible explanation, however, is that these countries are in such dire financial straits that they can't even raise a quarter of the amount requested. This is the co-payment they are required to make in order to gain access to the money.
Hollande acknowledges no taboos
This is all too slow for the newly-elected French president, François Hollande. He insists that there has to be rapid growth, so that the cash-strapped states are in a position to be able to repay their debts. In order to achieve this, Hollande seems to be prepared to use any means at his disposal: Higher taxes on the rich, eurobonds, or simply running up new debt.
For German opposition politicians, this is going too far. “Debt” is such an ugly word to German ears that the Social Democrats prefer to bank on the introduction of a tax on financial transactions in order to finance more growth.
There is support for the new politicians of growth on the other side of the Atlantic. The Nobel-Prize-winning economist Paul Krugman accuses the European crisis managers of “cutting until there's nothing left to cut”. In the Handelsblatt business magazine he writes: “The idea that austerity measures can stimulate the economy is not a very credible one. Under the conditions that prevailed in 2010, and still prevail today, it is absurd.”
Not an either-or strategy
Also writing in the Handelsblatt, Thomas Straubhaar, president of the Hamburg Institute of International Economics, considers the current debate (“either austerity or growth”), as it is being presented in Germany, to be a hollow one rather than absurd. “In fact, what we are looking at here is a strategy that envisages both,” he writes. “Europe needs to deploy both, with good understanding and common sense: Both a strategy for growth and a policy of making cuts.”
Even Hollande will not be able to avoid making cuts. If he wants to get the budget deficit down to less than three percent in 2013, he needs to save more than two percent of France's GDP. That doesn't leave much room for generous gestures. Straubhaar is convinced that Hollande will talk loudly about growth and justice, but quietly do what needs to be done.
Growth, unlike cuts, is not something that can be imposed. And measures to stimulate growth don't work quickly, either, as Alvaro of the European Parliament points out. “Unfortunately,” says Alvaro, “we don't possess a super-fertilizer to make all the flowers in Europe blossom overnight.”
Author: Danhong Zhang / cc
Editor: Gregg Benzow