3rd Feb 2023


Post-2008 austerity has made EU citizens €3,000 per year worse off

  • (Photo: Alice Pasqual)
Listen to article

By focusing on achieving arbitrarily set low-debt objectives rather than responsible investment, the EU's economic policy has damaged public services, living standards and our efforts to tackle the climate crisis.

Now, the European Commission must deliver a positive, long-term economic approach that invests in health, education, wellbeing and a green future.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Ahead of the international climate conference COP27, a senior UN spokesperson said "we had our chance to make incremental changes, but that time is over. Only a root-and-branch transformation of our economies and societies can save us from accelerating climate disaster."

That's why the Commission's announcement on its economic governance review tomorrow is so important. It will have a major impact on whether European governments can sufficiently invest in a better, greener future.

The current rules, including the Stability and Growth Pact, forced a decade of austerity and harmed European prosperity following the 2008 financial crisis. European governments cut spending on infrastructure and vital public services as well as forgoing key green investments in a failed attempt to cut debt and increase GDP.

Repeating these failed economic policies would fatally undermine our climate objectives. Estimates suggest that the EU requires investments of up to €855bn (excluding transport and investments to safeguard biodiversity) to tackle climate breakdown.

The Commission's Green Deal is only set to mobilise a third of this investment from both private and public sector sources. Importantly, to not add fuel to fire, new rules must lead to the phase out of public investments in polluting sectors, especially fossil fuels.

The political focus on reducing public debt was also counterproductive. By depressing spending and investment in the midst of private sector weakness, these fiscal rules likely led to even higher debt levels. Countries that implemented the harshest austerity measures, such as Italy and Greece, ended up having higher debt and lower growth.

As a result of austerity policies, European governments are now spending €1000 less on public and social services per person than they would have without these cuts, as recent research by the New Economics Foundation and Finance Watch showed.

If public capital investment had increased at its pre-2008 rate, by 2019, just before the pandemic struck, the stock of government infrastructure would have increased by €533bn.

Austerity has contributed to European citizens being nearly €3000 a year worse off and made us less resilient to economic shocks, like those resulting from the Covid-19 pandemic and the Russian invasion of Ukraine.

Moreover, the EU had an estimated investment gap of at least €142bn per year for social spending such as health and education.

Significant investments are needed to improve EU residents' quality of life, particularly for those on the lowest incomes. In 2021, even before the energy crisis, 95.4 million people (nearly 22 percent of the EU's population) were at risk of poverty or social exclusion. Today, more than half feel at financial risk.

Politics of EU government spending rules

The economic governance framework, to be presented by the Commission tomorrow (9 November), is where the EU must begin with its "root-and-branch transformation of our economies".

We need to prioritise real economic, social and environmental outcomes that allow everyone to enjoy a warm home, well-paid and decent work, good health and a habitable planet. This starts with a European economic governance framework that prioritises long-term environmental and social sustainability over short-term thinking.

Instead, the Commission is likely to propose plans that will focus on achieving non-evidence based debt and deficit targets.

These rules may be softer than the current iteration, with less strict debt reduction timetables and more agency to member states in long-term investments and debt reduction, but the debt targets that were behind the post-financial crisis austerity will still be at its core.

Abiding by these rules would require the euro area to maintain an annual fiscal surplus of 1.1 percent of GDP over 20 years — a level that would halt the recovery, limit green spending and lower many countries' prosperity over the long run, reducing tax income and increasing the debt-to-GDP ratio.

Restrictive government spending and a lack of European borrowing following the 2008 financial crisis contributed to asymmetrical recovery between different European countries.

Average incomes have dropped by different levels across Europe. Whilst the average disposable income in Europe fell by roughly 11 percent compared to pre-2008 trends, in Germany average income only fell by 1 percent. Incomes in Finland and the Netherlands were 15 to 16 percent lower. Ireland and Spain were hardest hit with average incomes dropping by 29 and 25 percent, respectively.

Europeans across the continent have suffered needlessly because of an economic policy framework that does not encourage sufficient public invest in our future prosperity.

With a difficult winter ahead and a planet facing global heating, we cannot afford to make the same mistakes again. To overcome these mounting challenges we need governments that are empowered to invest in people and communities as well as to mitigate and adapt to ecological breakdown.

Author bio

Sebastian Mang is Senior Advocacy and Campaigns Officer at the New Economics Foundation where his work primarily covers European economic policy, with a special focus on fiscal policy.


The views expressed in this opinion piece are the author's, not those of EUobserver.

Netherlands tops EU social safety net for the poor

The Netherlands is the only EU state where the minimum income is above the poverty line. A minimum income is not a wage but rather a social safety net to ensure people do not end up destitute.

EU's Mr Austerity: No need to change debt ceiling

Austrian official and fiscal hawk Alfred Katterl has said the EU's 'stability and growth pact' on national debt-limits should remain sacrosanct, but some economists disagree.

Europe is giving more aid to Ukraine than you think

'Europeans need to pull their weight in Ukraine. They should pony up more funds.' Such has been the chorus since the start of the war. The problem is the argument isn't borne out by the facts, at least not anymore.


Democracy — is it in crisis or renaissance?

Countries that were once democratising are now moving in the other direction — think of Turkey, Myanmar, Hungary or Tunisia. On the other hand, in autocracies mass mobilisation rarely succeeds in changing political institutions. Think of Belarus, Iran or Algeria.

Europe is giving more aid to Ukraine than you think

'Europeans need to pull their weight in Ukraine. They should pony up more funds.' Such has been the chorus since the start of the war. The problem is the argument isn't borne out by the facts, at least not anymore.

Latest News

  1. How the centre-right can take on hard-right and win big in 2024
  2. Top EU officials show Ukraine solidarity on risky trip
  3. MEPs launch anonymous drop-box for shady lobbying secrets
  4. Hawkish ECB rate-rise 'puts energy transition at risk'
  5. MEPs push for greater powers for workers' councils
  6. How Pavel won big as new Czech president — and why it matters
  7. French official to take on Islamophobia in EU
  8. EU green industry plan could spark 'dangerous subsidy race'

Stakeholders' Highlights

  1. Party of the European LeftJOB ALERT - Seeking a Communications Manager (FT) for our Brussels office!
  2. European Parliamentary Forum for Sexual & Reproductive Rights (EPF)Launch of the EPF Contraception Policy Atlas Europe 2023. 8th February. Register now.
  3. Europan Patent OfficeHydrogen patents for a clean energy future: A global trend analysis of innovation along hydrogen value chains
  4. Forum EuropeConnecting the World from the Skies calls for global cooperation in NTN rollout
  5. EFBWWCouncil issues disappointing position ignoring the threats posed by asbestos
  6. Nordic Council of MinistersLarge Nordic youth delegation at COP15 biodiversity summit in Montreal

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  4. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  5. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos
  6. European Committee of the RegionsRe-Watch EURegions Week 2022

Join EUobserver

Support quality EU news

Join us