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March 5, 2012 6:50 pm
Arguing against austerity in Brussels has, for much of the past two years, been a quixotic affair.
For László Andor, it included resorting to Twitter to rail against automatic sanctions for highly indebted eurozone countries and giving speeches to obscure think-tanks warning that cuts without investment would strangle Europe’s periphery.
Yet Mr Andor, the European Union commissioner for social affairs, is no longer a lonely voice.
A series of increasingly bleak economic data from the eurozone’s most troubled countries have given credence to his argument that a policy of harsh austerity may prove self-defeating. A confidential report by Greece’s international lenders last month for the first time acknowledged a “fundamental tension” within Athens’ austerity programme. The country’s manufacturing sector suffered its sharpest decline in nearly 13 years in February, according to a survey by Markit.
“With Greece ... the medicine that has been used is extremely demanding – and risks killing the patient,” the Hungarian-born Mr Andor says in an interview. “Nobody can seriously believe, except for the very naive, that if you cut wages by 20 per cent, the week after they will start exporting cars.”
His scepticism could seem almost heretical in the Commission, which last month received powers to investigate national budgets and recommend fines for countries that do not drastically cut their deficits.
But the austerity versus growth debate has forced its way into the political discourse. In France François Hollande, the Socialist presidential candidate, wants to challenge the fiscal pact while Denmark’s Helle Thorning-Schmidt, prime minister, has called for targeted stimulus. The Dutch coalition is split over how to meet EU budget targets, while Spain has announced it will flout those targets, to Brussels’ great frustration.
Mr Andor says part of Europe’s problem stems not just from the high wages, and ensuing lack of competitiveness, of Greek or Spanish workers. The too-low wages of German workers has depressed demand, he argues.
“There is a European interest that, in countries where there can be wage increases, there have to be wage increases,” he says.
Mr Andor, a UK-trained economist, came to his current job after directing the European Bank for Reconstruction and Development, which helped steer loans and investment in eastern Europe.
The experience coloured his views on the crisis. He notes that in the developing world, short-term International Monetary Fund bail-out loans are accompanied by long-term World Bank adjustment programmes, giving countries time to get their fiscal house in order. No such policy exists for eurozone countries.
“It’s very, very ironic that, in a third-world context, this approach to have short-term funding and also long-term support for structural adjustment was provided, while inside the European Union it was not the first idea to have both,” he says. What is needed, he argues, is a Marshall plan: project financing by the European Investment Bank, more public-backed direct investment and a long-term plan to improve competitiveness.
Some European policymakers have begun making similar noises around the need for growth initiatives. But after months of pro-austerity rhetoric dominating the corridors of Brussels, any change will almost certainly be slower than Mr Andor would like.
“Intellectually, there’s been clearly a strong bias for an approach that fiscal consolidation, as such, alone will do the magic,” he says. “[But] additional policies can deliver more and better.”
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