Austerity vs. Europe – Javier Solana

Austerity vs. Europe

 By Javier Solana

MADRID ― It is now increasingly clear that what started in late 2008 is no ordinary economic slump. Almost four years after the beginning of the crisis, developed economies have not managed a sustainable recovery, and even the better-off countries reveal signs of weakness. Faced with the certainty of a double-dip recession, Europe’s difficulties are daunting.

Not only is Europe running the risk of lasting economic damage; high long-term unemployment and popular discontent threaten to weaken permanently the cohesiveness of its social fabric. And, politically, there is a real danger that citizens will stop trusting institutions, both national and European, and be tempted by populist appeals, as in the past.

Europe must avoid this scenario at all costs. Economic growth must be the priority, for only growth will put people back to work and repay Europe’s debts.

Understandably, there is a debate about how to achieve recovery. Advocates of austerity argue that debt has a negative impact on growth; proponents of further stimulus counter that it is low growth that generates public debt, not the other way around, and that austerity in times of recession only makes things worse.

But Europeans do not have to agree on everything to find a common course. We can disagree about the long-term effects of liquidity injections, but we can all agree that it is not right to allow profitable companies to fail because credit markets are not working. We do not have to see eye to eye on fiscal policy to understand that it makes more sense to promote investment than to see our productive structure languish. And we all know that it is more cost-effective to invest in retraining the jobless than to allow long-term unemployment.

In any case, doubts about the negative impact of austerity are becoming impossible to ignore. History shows that in a deep recession it is far more dangerous to withdraw economic stimulus too early than too late.

An excessive cut in public spending in the current circumstances can lead to a contraction in growth, which is already happening: the International Monetary Fund now projects that the eurozone will shrink by 0.5 percent in 2012. Structural reforms are important to guarantee future sustainable growth, but they do not generate growth in the short term, which is what Europe needs. Instead, in exchange for meager progress on debt reduction, Europe risks causing lasting damage to its growth potential.

Compared to a new recession, the long-term cost of stimulus policies is insignificant. In many countries, current budget deficits are the result not of reckless government overspending, but of temporary measures to deal with the crisis. With interest rates already low and the private sector deleveraging, there is little risk of expansionary policies causing inflation or crowding out private investment. By contrast, spending reductions could undermine economic activity and increase, not decrease, the public-debt burden.

Public debt, moreover, should not be demonized. It makes financial sense for states to share the cost of public investments, such as infrastructure projects or public services, with future generations, which will also benefit from them. Debt is the mechanism by which we institutionalize intergenerational solidarity. The problem is not debt, but ensuring that it finances productive investment, that it is kept within reasonable limits, and that it can be serviced with little difficulty.

Yet, ominously, the same arguments that turned the 1929 financial crisis into the Great Depression are being used today in favor of austerity at all costs. We cannot allow history to repeat itself. Political leaders must take the initiative to avert an economically driven social crisis. Two actions are urgently needed.

At a global level, more must be done to address macroeconomic imbalances and generate demand in surplus countries, including developed economies like Germany. Surplus emerging-market economies must understand that a prolonged contraction in the developed world creates a real danger of a global downturn at a time when they no longer retain the room for maneuver that they had four years ago.

Within the eurozone, structural reforms and more efficient public spending, which are essential to sustainable long-term growth and debt levels, must be combined with policies to support demand and recovery in the short term. The steps taken in this direction by German Chancellor Angela Merkel and French President Nicolas Sarkozy are welcome but insufficient. What is needed is a grand bargain, with countries that lack policy credibility undertaking structural reforms without delay, in exchange for more room within the EU for growth-generating measures, even at the cost of higher short-term deficits.

The world is facing unprecedented challenges. Never before in recent history has a deep recession coincided with seismic geopolitical change. The temptation to favor misguided national priorities could lead to disaster for all.

Only enlightened political leadership can avert this outcome. European leaders must understand that adjustment programs have a social as well as a financial side, and that they will be unsustainable if those affected face the prospect of years of sacrifices with no light at the end of the tunnel.

Austerity at all costs is a flawed strategy, and it will not work. We cannot allow a misconceived notion of “discipline” to cause lasting damage to our economies and inflict a terrible human toll on our societies. All of Europe must agree on a short-term growth strategy ― and implement it quickly.

Javier Solana, former EU high representative for the Common Foreign and Security Policy, secretary-general of NATO, and minister of defense of Spain, is distinguished senior fellow in foreign policy at the Brookings Institution and president of the ESADE Center for Global Economy and Geopolitics. For more stories, visit Project Syndicate (


Thanks to Denise for making me aware of this article. I see Bjorn (Farmer) also has a good post up. Check it out:

after 3,5 years financial crisis Solana cries:”implement it!”



18 thoughts on “Austerity vs. Europe – Javier Solana

  1. Its funny how is says a few times the word MUST.. I wonder if they will listen or let him decide what should happen. I also would like to know what his fixes and policies regarding the debit crisis are. Maybe we will find out sooner rather than later.



    Now it comes down to the money for Israel, then?

    and these headlines are so sad, this is what austerity means in real life I guess, people freezing to death

    Cold weather in Ukriane kills over 100 people

    and this one also about the cold weather in Europe and Japan

    Europe, Japan: How Much More Cold, Snow?
    by Jonathan Erdman, Sr. Meteorologist

    thanks to shampoo for links

    the world is not an easy place that is for sure


  3. Please reread the book of Esther, chapter 5 is where this is recorded, but the whole book refreshes our memories.

    As Queen Esther of Persia,called for prayers from her people during the time when Haman was plotting to destroy all of the Jewish nation, she asked for fasting and prayers from all the people as she went into the King, as directed by her Uncle Mordecai, even though she risked her life to go into the King without being called.

    We can go to our King Jesus Christ of Nazareth with no fear of death, I ask that all who read here join me in a time of fasting and prayers for the nation of Israel and the Jewish people around the world. We know we are in troubling times, but even so, we are to pray daily and always remember the sufferings of others.

    Praying for the peace of Jerusalem, which will be for sure when our Jesus returns here.


  4. The Gas pipeline from Egypt- Jordan – Israel has been blown up.. Syria went nuts against the rebels last night and the Syrian embassy was ravaged in Australia last night by a mob, they aren’t sure who did it yet.
    China and Russia vetoed the UN sanctions against Syria as well.
    Its going to be on soon.


  5. Really sounds like it is on now and we are right on the brink, I have watched since the 70s when I was old enough as a believer to understand how to watch, and have never seen it like this.

    Keep watching and praying.


  6. Wow sounds like Solana is wanting to orchastrate things pretty bad. Also, like LaFreak and Roma, I’d say the war is on and on the brink of becoming full blown. Soo much is happening at once it is hard to keep up. Thanks for the info to everyone who is keeping us updated.


  7. Just watching Newt Gingrich press conference and he said Obama care takes away religious freedom where you have to pay or something to worship God, i didn’t think a health care policy had anything to do with religious freedom.. Can anyone explain what he means?


  8. LaFreak I read where obamacare will require hospitals operated by religious organizations to provide birth control without copay. Since many of our hospitals are run by these organizations (alot of them being Catholic) who do not believe in nor provide birth control Gingrich says this is infringing on religious freedom.


  9. Cool thanks for the update on that , I was confused as he didn’t say what it was but thanks 🙂 They let anyone in this country get the pill and an abortion if you want one. Its silly really.
    And Made4eternity: I moved a couple months ago to the outer suburbs of Sydney so currently I don’t attend any church, I use to go to Eastwood Baptist church occasionally although my friend who is a Pastor who because of him is the reason im a Christian over 20 years ago goes to a church out this way and i will ask him which one and probably attend that one. Ill keep you posted on that 😉


  10. Thanks lafreak…my daughter and son in law are very involved in the very first Sovereign Grace church in Australia…it’s called Sovereign Grace Sydney, I thought there was a remote chance you all attended the same church. The pastor (from Wales) is VERY gospel focused, an excellent preacher and the praise and worship is so Theologically as long as you are “looking” you may want to tuck this bit of info in the back of your mind and pay them a visit some time :-). Blessings to you!


  11. The rumblings from the EU of the case that would be used against the UK govt should it need to be uprooted:
    “Cameron idea to repatriate EU laws is ‘complete non-starter'”

    “In a strongly worded address to a trade union audience in London on Monday (13 February), EU social affairs commissioner Laszlo Andor also took Britain to task for promulgating stereotypes, its dislike of employment legislation and the assumption that it can cherrypick EU laws.

    Andor noted that EU laws which have been agreed by governments and parliament – as social laws are – are binding on all member states.

    If Britain wanted to be exempt from social and employment laws, the treaty would have to be changed – itself requiring the agreement of all 27 countries.”

    If the time comes that uprooting a third horn is deemed necessary by the leader of the EU- and if that horn is the govt of the UK, the above details the argument they’ll use. In their eyes, the UK govt is defying the treaty (which they have no right to leave on their own) and if it comes to a crisis for the EU they will take down Cameron’s govt and promote one more to their liking.


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