Last month, Oxfam published a scathing report comparing Europe's post-2008 austerity policies, to those imposed by the IMF on Asia, Africa, and Latin America in the 1980s and 90s. While austerity in Europe have been guided by a certain naivete and blissful ignorance regarding the details and outcomes of austerity politics and structural adjustment in Asia, Africa and Latin America, the reality on the ground is that austerity programs in Europe, as in Asia two decades ago, have begun dismantling the very mechanisms responsible for reducing inequality and promoting stable, sustainable economic growth. Results were rising poverty and stagnant growth.
As a result of austerity measures, Europe has begun seeing similar results, including slowest growth of all of the world's major economic regions, and slowest crisis recovery. Deficits have also risen as a percentage of GDP due to economic contraction. Moreover, according to Oxfam, European countries are suffering record levels of long-term and youth unemployment. Nearly one in ten working households in Europe now lives in poverty. Effects are most severe in countries that have undertaken the most aggressive spending cuts. Much like in the developing world, the dismantling of social cohesion has also lead to a rise in unrest in Europe. After policy failures in Asia and Latin America, traditional leading proponents of austerity in the developing world, the IMF and World Bank, have begun to formally recognize that austerity has stunted both economic growth and equality in much of the developing world. Unfortunately, it appears that Europe's policy circles failed learn that lesson from events in the developing world.
The Oxfam report makes policy recommendations focusing on investment in human capital development, expansion in public services, strengthening of institutional democracy and tax reform aimed at counteracting tax avoidance, as well as establishing a more progressive tax code.
European austerity programmes have dismantled the mechanisms that reduce inequality and enable equitable growth. With inequality and poverty on the rise, Europe is facing a lost decade. An additional 15 to 25 million people across Europe could face the prospect of living in poverty by 2025 if austerity measures continue. Oxfam knows this because it has seen it before. The austerity programmes bear a striking resemblance to the ruinous structural adjustment policies imposed on Latin America, South East Asia, and sub-Saharan African in the 1980s and 1990s. These policies were a failure: a medicine that sought to cure the disease by killing the patient. They cannot be allowed to happen again. Oxfam calls on the governments of Europe to turn away from austerity measures and instead choose a path of inclusive growth that delivers better outcomes for people, communities, and the environment.
Max Berre is an economist at the EDHEC-Risk Institute (Ecole Des Hautes Etudes Commerciales du Nord) who has worked as a sovereign debt expert at the Inter-American Development Bank in Washington and has taught financial economics at Maastricht University in the Netherlands.