The consequences of Europe’s rush to austerity will be long-lasting and possibly severe. If the euro survives, it will come at the price of high unemployment and enormous suffering, especially in the crisis countries. And the crisis itself almost surely will spread. Firewalls won't work, if kerosene is simultaneously thrown on the fire, as Europe seems committed to doing: there is no example of a large economy – and Europe is the world’s largest – recovering as a result of austerity.Neoliberalism, the brand of free market fundamentalism not dominant in the US and Europe, doesn't take much account of human costs - except for financial costs to the One Percent. It primarily listens only to the dogmas of the Great God Free Market. But, as Stiglitz explains:
As a result, society’s most valuable asset, its human capital, is being wasted and even destroyed. Young people who are long deprived of a decent job – and youth unemployment in some countries is approaching or exceeding 50%, and has been unacceptably high since 2008 – become alienated. When they eventually find work, it will be at a much lower wage. Normally, youth is a time when skills get built up; now, it is a time when they atrophy.
So many economies are vulnerable to natural disasters – earthquakes, floods, typhoons, hurricanes, tsunamis – that adding a man-made disaster is all the more tragic. But that is what Europe is doing. Indeed, its leaders’ willful ignorance of the lessons of the past is criminal. [my emphasis]
This we should know by now: markets on their own are not stable. Not only do they repeatedly generate destabilizing asset bubbles, but, when demand weakens, forces that exacerbate the downturn come into play. Unemployment, and fear that it will spread, drives down wages, incomes, and consumption – and thus total demand. Decreased rates of household formation – young Americans, for example, are increasingly moving back in with their parents – depress housing prices, leading to still more foreclosures. States with balanced-budget frameworks are forced to cut spending as tax revenues fall – an automatic destabilizer that Europe seems mindlessly bent on adopting.This is not anything exotic or new. It's basic macroeconomics. The cost of ignoring it in Europe have been enormous and continues to grow.
Tags: angela merkel, austerity economics, eu, euro, european union