Critique on the inevitability of European austerity

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Mr. Daniel Gros has published a pro-austerity article on Project Syndicate titled “Has Austerity Failed in Europe?“. To venture into questioning the validity of Mr. Gros’ postulates, let us place our critique in light of the following paragraph of his, which is characteristic of most austeritarian claims to truthfulness:

Countries whose governments have either lost access to normal market financing (like Greece, Ireland, and Portugal), or face very high risk premia (like Italy and Spain in 2011-2012) simply do not have a choice: they must reduce their expenditures or get financing from some official body like the International Monetary Fund or the European Stability Mechanism (ESM). But foreign official financing will always be subject to lenders’ conditions – and lenders see no reason to finance ongoing spending at levels that previously led a country into trouble.

If someone utterly oblivious of the European political-economic context were to read this kind of syllogism, she would have difficulty identifying its argumentative flaws. However, anyone with rudimentary knowledge of the matter knows that this fatalistic conception cannot withstand scrutiny. These countries that Mr. Gros is referring to, are not just the “eurozone periphery”, but integral parts of a monetary union, of the Euro. Being part of the euro is not tantamount to membership at a largely irrelevant international forum. There are far-reaching ramifications in terms of policy and state powers. Most evident of all is the loss of monetary sovereignty, which is transferred to the European level, where the European Central Bank is mandated to deliver a one-size-fits-all “stability” policy of inflation targeting.

Mr. Gros only assesses a selective of indicators or factors to ground his deterministic theory of austerity’s inevitability. He omits the broader context. The fact that countries are left with no choice is not due to their levels of debt as such, nor because of their alleged or actual profligacy; such a straitjacket is forced upon them for two very specific reasons: (i) the design flaws of the Euro, which is a monetary union without a political, fiscal and banking union, and (ii) the lack of political willingness to change the ideology that hitherto permeates the monetary union, so as to institute policies that were not envisaged by the euro’s architects. Without the capacity to absorb shocks by monetary means, in the absence of a common fiscal policy to ameliorate asymmetric shocks, lacking a banking union to break the feedback loop between enfeebled sovereigns and undercapitalized banks, the eurozone periphery is indeed left helpless to the vicissitudes of global finance (and electoral caprices).

To blithely disregard the inadequacies of the institutional setup of the euro, to fail to even mention that the euro’s introduction caused the excessive misallocation of resources that fostered these infamous macroeconomic imbalances across the Euro Area, is to remain neglectful of the specificities—the facts—of the case. __It is to propound a tissue of superficialities with limited consideration of the broader milieu that engendered these realities.

Additionally, let us not forget that the Euro is a largely political project, aimed at surreptitiously introducing a counterfeit federation through the back door of economic expedience or necessity. By “political”, I also mean “ideological”, as it is clearly underpinned by a given mentality: a magma of neoliberalism and technocracy. If political leaders were willing to truly reform the Economic and Monetary Union, so as to allow for concerted economic action, no power in the world could have prevented them from doing so. Besides, they did find the temerity to violate all sorts of much-touted legal and political norms, in concocting all these pitiful inter-governmental scaffolds to support the collapsing Euro edifice (the troika, the EFSF etc.). At bottom, it was a profound unwillingness to question the very tenets of thought that impregnated both the Euro and the political humbugerry of “more Europe”, that left the “eurozone periphery” with no choice but to succumb to the dubious fatalism of austerity’s fervent exponents, most of whom happen to occupy the highest strata of power in the European Union.

For as long as these institutional parameters are not factored in an evaluation of austerity, to see if it has failed or not, the exercise can only be a rationalization of ideological predispositions. Appreciating present events against their historical-political backdrop, shall allow anyone who is willing to think with an open mind, to see that austerity was not inevitable. Austerity was a very scrupulous choice, whether it was based on political-cultural prejudices or was erroneously considered as the sole path to sustainability by means of an inadequate economic theory.

Finally and as a general note, it seems to me that under the scope of EU affairs, what has truly failed in Europe, are the still-prevalent quasi-moralistic politics and their corresponding 19th century economics.