The Return of a Dangerous Idea

It’s now so discredited that no one dares speak its name. When the European Union launched ‘excessive deficit procedures’ against seven countries in June, demanding they take corrective action or face sanctions, the commissioner for economy Paolo Gentiloni insisted it had nothing to do with austerity. True, he conceded, Brussels was demanding the affected countries make efforts after the generosity shown during Covid, but ‘prudence in spending, which is obligatory for countries with high deficits and debt, should not be confused with austerity’ (Il Messaggero, 20 June 2024).

A few months later, the French government, justifying the €40bn in public spending cuts it proposes for 2025, referred to a ‘recovery budget’, ‘a budget of responsibility’ and ‘a truthful budget’. Italy, which plans to cut €13bn annually for seven years, called it a ‘path of adjustment’. The a-word is outlawed in Quebec too, where, despite the announcement of a hiring freeze across multiple ministries, the Treasury Board president was adamant: ‘It’s not true there is austerity. It’s not true there are cuts.’

And yet it’s back. Not as shock therapy this time, but gradually, discreetly, almost shamefacedly. Since the draconian measures imposed on southern Europe after the 2008 financial crisis, much has changed to make the remedy unmentionable. Its impact on Greece is well known: an explosion in unemployment, suicides, drug addiction, infant mortality, HIV infections, tuberculosis outbreaks… Brussels called for patience. The Greeks waited, watching their country turn into an Airbnb complex for well-off Europeans.

And 15 years later, austerity still reigns. Greek GDP remains 25% below pre-crisis level, as does the average annual salary. Public debt has reached 160% of GDP, compared to 103% in 2007. In Germany, the fiscal straitjacket has so starved investment that bridges are collapsing and commuters are amazed when a Deutsche Bahn train arrives on time. Yet in Germany, it has been known since Chancellor Heinrich Brüning’s restrictive policies in 1932 that austerity is a ‘dangerous idea’: it seeks a solution in the pockets of those who didn’t cause the problem and it does not work (1).

In an especially uncertain world, where world war forever seems possible, and where climate change poses countless threats for the future, the prospect of a generation of belt-tightening in return for questionable results holds little appeal. Citizens have also ceased to believe in the myth that there is no alternative. After the 2008 crash, the European Central Bank purchased massive amounts of government bonds, the UK and Iceland nationalised banks, and Cyprus imposed a levy on bank deposits over €100,000. At the beginning of the pandemic, the EU announced a general suspension of its budgetary rules; the French state covered the wages of millions of workers (via furlough schemes) and the US Congress sent $1,200 cheques to American households.

In times of crises, supposedly unbreakable rules and dogmas get broken. The conflict in Ukraine has shown that energy prices can be capped. In France, that war has also been used to justify a 40% increase in military spending, totalling €413 billionn by 2030. The government intends to fund this ‘war economy’ by waging economic war on the unemployed, pensioners, civil servants and those who use public services.

Notes.

(1Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013.

Translated by George Miller.

Benoît Bréville is deputy editor of Le Monde diplomatique.