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23rd Jun 2018

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.

Thousands protest against French austerity budget

French President Francois Hollande faced his first serious public backlash after up to 50,000 lined the streets of Paris on Sunday in protest against his €37 billion austerity budget.

Greece and creditors proclaim 'end of crisis'

After late-night talks, the Eurogroup agreed on a €15bn disbursement and debt relief measures for Greece, while setting out a tight monitoring when the bailout ends in August.

Greek bailout exit takes shape

At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

Opinion

The risks behind the 'green bond' boom

The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

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