AMID CRIES of outrage and expressions of disbelief, a new age of austerity has arrived in Europe. As governments across the euro zone impose cuts on a scale unseen in decades, Greece has already seen violent demonstrations and general strikes. Now there is growing concern that such displays of public anger will become more widespread.
Spanish trade unions were yesterday threatening nationwide walkouts and protests. The shock is palpable in countries which have moved from poverty to prosperity during the decades of almost uninterrupted growth since the second World War and have always enjoyed material benefits of EU membership.
“Two things are hard to believe: I can get laid off and that I’ll have to work to 65 to get a pension,” says Yannis Adamopoulos, who is a security guard at a state-controlled Greek corporation. Another Greek, Fotis Magriotis, a self-employed civil engineer, has put his SUV up for sale. Work is hard to find and taxes on petrol have twice been increased. “There’s no alternative to downsizing,” he says.
Such statements provoke grim humour in the northern half of Europe, where job insecurity, retirement at 65, small cars and high petrol prices are not unusual.
In the end it was the financial markets, not the austere German paymasters of the euro zone, that exposed the vulnerability of Greece, Spain and Portugal and triggered the €750 billion rescue package unveiled last weekend.
The bailout came with strings attached. Governments would be obliged to cut their deficits and cut them hard.
Greeks face a significant drop in living standards. The new reality imposed by the Socialist government – a 12 per cent wage cut for civil servants, reductions in pensions and looming job losses in public sector corporations – has stunned workers in the bloated state sector.
A similar adjustment is being imposed by the Socialist government of Spain. Prime Minister José Luis Rodríguez Zapatero this week went back on his promises, cutting civil service pay by 5 per cent from next month.
In the north, the Germans have been living up to their reputation as diligent workers prudently aware of the eternal trade-off between services and taxes. Many voters in the North Rhine-Westphalia state poll last Sunday said they would rather pay more tax than see their local swimming pool or kindergarten shut.
The north-south European divide is not, however, as stark as it first appears.
France straddles north and south and could face mass protests over a three-year government spending freeze. Ireland and Britain were among the most profligate European nations, as bubbles in housing and financial services swelled unsustainably in the heady years before the collapse of Lehman Brothers.
The new British government has proposed sweeping cuts, but the issue was not much discussed in the general election campaign and details remain secret. There is no means yet of knowing how well Britain will accept its fate.
Nor are southern Europeans as profligate as some suggest.
Italians feel their belts have been tightened for some time, although the word austerity has not entered Italy’s political vocabulary because Prime Minister Silvio Berlusconi likes to keep the mood upbeat.
In Portugal, the economically conservative inhabitants are responding to tough austerity measures by saving, prioritising mortgage payments and defending their jobs. As in previous recessions, when thousands worked for months without pay, the country has opted for resilience rather than revolt.
Each euro zone country is taking the measures it must or can take. The danger is that a Europe hounded by market forces has acted too late and that these sharp doses of austerity will stifle the first stirrings of new economic growth and so worsen budget problems in the future by provoking a relapse into recession. – Copyright The Financial Times Limited 2010
