Transcript austerity packages TURI Athens

Austerity Packages in Europe:
an overview
Presentation prepared for the
‘TURI annual network meeting’
Athens, 14 May 2011
Andrew Watt, Senior Researcher, ETUI
Contact: [email protected]
The Purpose of the Exercise
● Evaluation from national and European
comparative perspective
● Motivation behind them, their size and time
structure?
● Composition? Spending cuts or tax hikes?
Implications for income distribution?
● Groups of society most likely to bear biggest
burden of adjustment?
● Potential effects on Europe 2020 strategy headline
targets?
● What role for social dialogue and trade unions in
shaping them?
Some background information on the Survey
● Survey of national experts—many from TURI
network
● Questionnaires filled in between Nov10 and Feb11
● Responses from 17 countries—88% of EU GDP
● Broad representation of member states (e.g.
West, East, core, peripheral…)
● Packages of measures adopted following credit
crunch---incl. before 2010
● Some caveats
● Published as ETUI WP (co-authored with Sotiria
Theodoropoulou)
Objectives, size and timing of the packages
● Objectives:
● Correct expanded budget deficits following crisis &
recession, often in response to higher cost of debt
financing
● SGP/Maastricht criteria for admission to Eurozone
● Conditionality of EU/IMF financial support
● Size:
● EU27 weighted average: -0,9% of GDP p.a. for 2011
and 2012
● Large national variation: from 1,4 bn € (SE-2011) to
129 bn € (UK)
● GR: -37 bn €; IE: -15 bn €; PT: -21.7 bn €; LT: -5.2 bn
€; HU: -9.4 bn €
● Timing: Mostly 2011-13/14; frontloaded adjustment for
crisis countries, starting 2010 or earlier
Overview of size and timing of the packages
Spending Cuts or Revenue Hikes?
● Majority of member states  emphasis on
spending cuts
● FR, HUN, IE, LU & UK: min 70% of total value
of measures
● PT, AT, DE, DK, GR: also balance in favour of
spending cuts
● Evaluation of composition for Income Distribution:
● Regressive Packages: PL, IE, CY, DE, LT, ES,
GR, DK
● Progressive Packages: FR, LU
● Neutral/ambiguous: AT, HU, UK
Who is paying the bill?
● Pensioners and those close to retirement
● Public sector employees
● Benefit recipients
Fiscal Austerity Compatible with Europe 2020?
● Employment rate target of 75%---massive risks
(austerity, interest rates, commodity prices) on top
of pessimistic forecasts
● Indications of cuts in public investment spending
(HU, UK, IE, LU, AT, ES, GR, DK)
● Education and Training: Evidence that cuts in line
with other areas or spared altogether
● Green growth/Low Carbon economy: shielded
from austerity
● R&D/Innovation: insufficient info
● Poverty & Social exclusion: insufficient specific
info
Social Dialogue and Fiscal Austerity Packages
• Did the design of the package involve social dialogue,
enabling the views of SPers, esp. TUs to be heard?
– SD in 9 out of 17 countries; yet in 5 out of these 9 TU
positions either barely taken into account or no agreement
• Positions of main TUs on the government measures?
– Mostly negative, except in AT, IT, SK
• Alternative TU suggestions:
– Protect more vulnerable groups of society by shielding
spending on their benefits
– Increase share of burden of adjustment for the better-off
through higher taxes
– Structure measures in a way that employment recovery will
not be jeopardised
Summary of Main Findings
• Still early to robustly assess the full scale and impact of
austerity packages. However,
• Austerity right across EU, but large national variations
• Large frontloaded packages in fiscally constrained MS
• Major concerns about their effect on (employment)
recovery and consistency with correcting macroeconomic
imbalances : reliance on private sector 'confidence'
• Emphasis on expenditure cuts over tax hikes
• Public sector employees and social benefits recipients
most harmed
• Europe 2020 objectives at risk? With partial exception of
environmentally sustainable growth (missed opportunity)
• Indications that social dialogue has either not preceded
adoption of packages or has not helped have the TUs’
views taken into account
The EU/IMF austerity packages
• Bailouts offered to EL (EUR110 bn) IE (80 bn) and
Portugal, provided by EU and IMF
• High interest rate 5-6% (2-3pp higher than AAA)
• Conditional on harsh deflationary austerity policies
(spending cuts and tax increases)
• Deflation 'necessary' to regain competitiveness
• But vicious circle:
• Very low nominal GDP growrh plus high interest rates means
debt stabilisation requires high primary government surpluses
(S = (r-g)D)
• Means more austerity and further depression of nominal GDP
growth
• This frightens investors which pushes up market interest rates
The EU/IMF austerity packages - ways out
Increasingly recognised that the packages are not working
Renewed package imminent in EL
Renegotiations in IE
Choice : Disintegration or integration
Right is calling for end of the euro area (D-Mark fans)
Some on the Left also (stiff the bondholders, avoid recession,
do an Argentina)
EMU is not a currency peg. Emu is worth saving. Integration
strategy needed
Zero interest rate penalty, convincing financial support,
growth and investment path to consolidation, no default, no
devaluation