Academic journal article Global Economic Observer

Eu Type of Austerity: Brief Analysis and Criticism

Academic journal article Global Economic Observer

Eu Type of Austerity: Brief Analysis and Criticism

Article excerpt

1. Austerity in EU Countries: Brief Analysis

Although austerity policies are blamed for lengthening the economic downturn of EU economies, a graph of public spending in the EU countries (Graphic 1), published this year (August 18) on the website of European Commission reveals that government spending is significantly higher in 2013 than before the 2008 financial crisis in most of the EU countries, especially in Eurozone and GUPS countries.

An analysis of EU public spending-to-GDP ratio discloses that total general government expenditure in the EU reached 49.0% of GDP, averaging 12,617 euro per person in 2013. Also, the public expenditure-to-GDP ratio increased by 3.5 percentage points between 2007 and 2013, amounting to 6.41 trillion of euro in 2013 (Graphic 4). The evolution of governments' spending over this period reveals that between 2007 and 2009, EU public expenditure-to-GDP ratio increased exceeding 50 percent, then decreased slightly to 49% between 2009 and 2013 (Graphic 2). Therefore, the increase of public spending in EU between 2007 and 2013 was not perfectly linear, but still the trend of public spending remained ascendant during this time.

Public expenditure-to-GDP ratio differs greatly across the EU countries: in some of the member states, governments' expenditures accounts for more than 54% of GDP, while in other states the proportion is between 34% and 39%. However, most of the EU states (23 of 28) spent more in 2013 than before the economic crisis of 2008. For example, in Italy, the government spent 47.6 percent of GDP in 2007 and 50.6 percent of GDP in 2013; in Spain, government expenditures reached 39.2 percent of GDP in 2007 and 44.8 percent of GDP in 2013; Greece's government spent 47.5 percent of GDP in 2007 and 58.5 percent of GDP in 2013; in Portugal, government spending increased from 44.4 percent of GDP in 2007 to 48.6 percent of GDP in 2013; in Ireland government spent 36.7 percent of GDP in 2007 and 42.9 percent of GDP in 2013 etc. Public expenditure-toGDP-ratio decreased in 2013 compared to 2007 in 5 countries only: Bulgaria, Hungary, Lithuania, Poland and Romania (Graphic 1).

Recent Eurostat data reflects what some of the critics of EU model of austerity pointed out already, namely that real austerity measures (i.e. cutting of government spending) were not implemented in most of the EU countries. Martin Masse (2013) - associate researcher at Institut économique Molinari in Paris - noted that although it was almost universally taken for granted that austerity measures adopted in Europe have meant drastic spending cuts combined with some tax increases, actually government spending has risen in the EU as a whole most of the time, since the beginning of the financial crisis (Graphic 4).

Statistics indicating that government deficit has gone down was commonly set forth as evidence of the austerity measures implemented in EU countries. General government deficits decreased indeed in EU between 2010 and 2013 (Graphic 5), but deficits can be reduced not only by spending cuts, but also by increasing revenue (e.g. increasing taxes) more than increasing spending.

This is exactly what happened in most of EU countries : when government revenues fell faster than expenditures, the deficits increased (2008-2009); also when government revenues have gone up faster than public spending the deficit decreased (Graphic 7).

Therefore, Martin Masse rightly emphasized that almost whenever governments announced budget cuts, they were actually referring not to absolute reductions in total expenditures but simply to spending increases that were lower than previously planned or to cuts of expenditures for some budget lines that were offset by higher budgetary spending elsewhere (Masse, 2013).

Also, Georg Erber (2013) from German Institute for Economic Research (Berlin) pointed out that while official story is that GIIPS countries have been devastated by cutbacks in public spending during last years, the figures shows a different picture. …

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