No alternative to austerity? That lie has now been nailed

By Owen Jones*, The Guardian.


Ever since the banks plunged the western world into economic chaos, we have been told that only cuts offer economic salvation. When the Conservatives and the Lib Dems formed their austerity coalition in 2010, they told the electorate – in apocalyptic tones – that without George Osborne’s scalpel, Britain would go the way of Greece. The economically illiterate metaphor of a household budget was relentlessly deployed – you shouldn’t spend more if you’re personally in debt, so why should the nation? – to popularise an ideologically driven fallacy.

But now, thanks to Portugal, we know how flawed the austerity experiment enforced across Europe was. Portugal was one of the European nations hardest hit by the economic crisis. After a bailout by a troika including the International Monetary Fund, creditors demanded stringent austerity measures that were enthusiastically implemented by Lisbon’s then conservative government. Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, and the working day was extended.

In a two-year period, education spending suffered a devastating 23% cut. Health services and social security suffered too. The human consequences were dire. Unemployment peaked at 17.5% in 2013; in 2012, there was a 41% jump in company bankruptcies; and poverty increased. 

All this was necessary to cure the overspending disease, went the logic.

At the end of 2015, this experiment came to an end. A new socialist government – with the support of more radical leftwing parties – assumed office.

The prime minister, António Costa, pledged to “turn the page on austerity”: it had sent the country back three decades, he said. 

The government’s opponents predicted disaster – “voodoo economics”, they called it. Perhaps another bailout would be triggered, leading to recession and even steeper cuts.

[...]

The economic rationale of the new Portuguese government was clear. Cuts suppressed demand: for a genuine recovery, demand had to be boosted.

The government pledged to increase the minimum wage, reverse regressive tax increases, return public sector wages and pensions to their pre-crisis levels – the salaries of many had plummeted by 30% – and reintroduce four cancelled public holidays. Social security for poorer families was increased, while a luxury charge was imposed on homes worth over €600,000 (£550,000).

The promised disaster did not materialise.

By the autumn of 2016 – a year after taking power – the government could boast of sustained economic growth, and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved, to 2.1% – lower than at any time since the return of democracy four decades ago.

Indeed, this is the first time Portugal has ever met eurozone fiscal rules. Meanwhile, the economy has now grown for 13 successive quarters.

Throughout Europe’s lost decade, millions of us held that there was indeed an alternative. Now we have the proof.




Read the full article at The Guardian.

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