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16th Apr 2021

EU chief defends austerity as criticism mounts

  • Nobody can defend austerity, but countries cannot increase spending, says Barroso (Photo: consilium.europa.eu)

EU commission chief Jose Manuel Barroso has come to the defence of more budget cuts to bring confidence back to southern economies, even as the IMF said the effects of austerity may have been underestimated.

"Nobody defends austerity in Europe, but can anyone tell governments to spend more? There is nothing more anti-social than high levels of debt," Barroso said Thursday (11 October) at a conference organised by Friends of Europe, a Brussels-based think-tank.

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He said austerity was not "imposed" by the EU commission - although the institution is involved in the so-called troika of international lenders in Greece, Portugal, Ireland and Spain - but that all the EU rules countries have to adhere to are "taken unanimously by governments."

"We have to put right the balance of responsibility. The reality is decisions are taken by the governments themselves," he said.

At the same time, he pointed out that the deficit and debt rules - known as the Stability and Growth pact - are "flexible" when it comes to worse-than-expected recession. Portugal and Spain have already been given an extra year to meet their targets.

"I think we can adapt and fine-tune in finding the right balance, but this cannot replace true fiscal consolidation, deep structural reforms and target investments," Barroso stressed.

Austerity policies in Europe have come under increasing fire, not only from the streets of Madrid, Athens, Lisbon and Paris, but also from the EU's other partner in the troika - the Washington-based International Monetary Fund.

In its latest World Economic Outlook the IMF admits that its growth forecasts had been wrong because it "underestimated" the negative effect of austerity measures.

IMF chief Christine Lagarde said Thursday at the IMF annual meeting in Tokyo that "more time" was needed for bailed out countries, rather than imposed cut-backs.

“That is what I have advocated for Portugal, this is what I have advocated for Spain, and this is what we are advocating for Greece, where I said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation programme that is considered," she said, as quoted by the Financial Times.

Leading economics research institute Nomura agrees. According to chief economist Richard Koo, the budget cuts and structural reforms are like a diabetes cure for a patient suffering from pneumonia.

“The patient can have both, but the doctor has to cure the pneumonia first even if the treatments contradict those required for the diabetes,” Koo told Bloomberg on Wednesday. “In Europe, austerity is the only game in town," he added.

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