Austerity Measures Cost Some Politicians Their Jobs

Steve Inskeep talks to John Peet, Europe Editor of The Economist about eurozone economies, and the backlash against austerity measures.

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STEVE INSKEEP, HOST:

Resistance to austerity measures in Europe has cost some politicians their jobs and others are in danger. John Peet of The Economist magazine has been watching Europe's backlash.

JOHN PEET: Well, I think the focus really is on the French election because the French face a challenger who looks like winning this election...

INSKEEP: Mm-hmm.

PEET: ...have made very clear that he wants to reopen the fiscal treaty that European leaders signed. And his reasons for wanting to do that is he says that there should be much more about growth and much less about austerity. And we now are seeing that echoed not just in the Mediterranean countries but in a country like the Netherlands, where the Dutch government fell last week over its plans for further fiscal austerity.

INSKEEP: Of course, you have a situation where governments need to pay their debts. Is anybody offering any alternatives to massive budget cuts and tax increases?

PEET: There is a lot of feeling out there that given how many economies are in a recession, more cutting of budgets and possibly more tax increases might not be the right answer. But there is very little by way of alternative because those who say we need to have more growth-promoting policies are not actually saying, you know, let's start spending more money because they realize that the financial markets would react if we went back in that direction. So it's all fairly vague stuff.

INSKEEP: You're saying that the politicians are not offering any particular creative ideas. What if you cast the net a little more widely? Are there any economists out there who say you could do something different within the parameters that the bond market is going to set?

PEET: Well, I think the professional economists, what they want to see is much faster implementation of reforms to the labor market, deregulation, liberalization of product markets across Europe to make the European economies more competitive. Now most of the politicians and others who are against this austerity are also unhappy about deregulation liberalization because they say that got them into the mess in the first place. So I think there is an economic agenda there that makes some sense and is even supported to some extent by the European Central Bank.

But the problem with the debate that's going on right now is that even those against austerity are not very keen on further liberalization.

INSKEEP: Hmm. Now let me ask about the one economy that even today seems to be the healthiest in Europe - Germany - and certainly the largest and most influential here. Is the German debate on austerity shifting at all?

PEET: Very little. I mean, one of the problems with this debate is that those who are against too much austerity are also demanding that Germany should do more to expand the economy to push growth across Europe. And a perfectly understandable German response to that is, look, we are doing better than we've done for 20 years already. Why should we, you know, do anymore? Which makes it very much harder for the other European countries to persuade the Germans that expansion is a good idea.

INSKEEP: Can you think of any country that seems to be leading the way out of here, has the potential to lead the way out?

PEET: Well, I think Germany continues to be the absolutely key country in Europe. It's by far the biggest and it's also currently doing best. But the debate in Germany is not very sort of pro-growth at the moment. Some countries not in the eurozone, like Poland and Sweden are doing pretty well. And of the countries that were in trouble, I would say Ireland looks as if it's the best at the moment because Ireland has implemented very heavy austerity programs, but is now beginning to grow again. So there are some examples but when you look at countries like France, Spain, Italy, there's an awful long way to go.

INSKEEP: One other thing, Mr. Peet. I just want to ask if the worst-case scenario here is more and more countries getting into the cycle that Greece has been in for several years, where you have budget cuts and massive firing of public workers which only hurts the economy more and puts the country in an even worse situation to pay its debts.

PEET: Well, I think the two countries I would push in that category are Portugal, which is to some extent there already...

INSKEEP: Right.

PEET: ...and much more worrying, Spain, because Spain is a big economy - is the third biggest economy and the eurozone. So that's the one to watch. But they are clearly in a position where the economy is shrinking. They've been told to implement deeper austerity, and that seems simply to make the economy shrink even more.

INSKEEP: Does nobody see this happening? I mean you're saying that hardly anyone seems to be proposing seriously another way out?

PEET: The problem is that Spain is in a real bind because it's very difficult for the government to borrow anymore. But some Spanish leaders are appealing to the Germans and others to allow them to borrow a bit more under the terms of the rules of the European Commission. It's just - Spain has gotten into a very difficult situation today and getting out of it is going to require a lot of work and a quite a lot of pain.

INSKEEP: John Peet of The Economist Magazine. Thanks very much.

PEET: Thank you.

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