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Shrinking EU Economies Deepen Austerity Divisions

  • Henry Ridgwell

Alongside Germany, France has been in the driving seat of European integration, but figures released Thursday show over 3.2 million French are jobless, and further cuts are looming.

Carmaker Citroen announced the closure of its factory in Aulnay-sous-Bois outside Paris, and Steel giant ArcelorMittal has begun mothballing furnaces.

In contrast, the biggest hiring announcement came from the national employment agency, Pole Emploi.

"GDP declined approximately 1 percent since the financial crisis started in 2008," said Philippe Brossard of investment group AG2R La Mondiale, adding that employment is declining at approximately the pace of GDP.

With both France and Spain revealing record unemployment figures, and a European economic crisis that shows little sign of ending, the relentless cycle of poor economic data appears to be turning the tide of opinion in Europe against the very austerity measures that were imposed to rein in government debt.

But the lack of growth has divided opinion: French President Francois Hollande — backed by many southern European leaders and the International Monetary Fund — blames excessive austerity, or government spending cuts, for the continent's economic stagnation, while German and European Central Bank (ECB) officials say governments must continue to pay down their debts.

Amid anti-austerity protests across the continent, European Commission president José Manuel Barroso said this week that austerity had reached its limit of popular support, a view echoed by Olli Rehn, EU Commissioner for Economic and Monetary Affairs.

"This slowing down of the pace of fiscal consolidation has been made possible by three factors: first, the increased credibility of fiscal policy which euro-area member states have achieved since 2011; second, the decisive action the ECB has taken to stabilize markets; and third, the reform of EU economic governance."

Simon Tilford, chief economist at the Center for European Reform, a London-based think-tank, there is a growing acceptance that austerity hasn't worked.

"Lots of European countries are chasing their tails," he said. "They are cutting public spending at a time when businesses are not investing, and consumers are not consuming."

An easing of austerity does not mean a sudden change in big government spending, says Tobias Blattner, chief European economist at Daiwa Capital Markets, the investment banking arm of Japanese brokerage Daiwa Securities Group.

"Everybody still wants and thinks that fiscal consolidation should be the aim and is exactly the right policy," he said. "But I think, as the European Commission president said, this should be done at a much slower pace in order to ensure social cohesion."

Meanwhile, Spain's unemployment figures have reached more than six million, over 27 percent of the workforce — the highest since the country's transition to democracy in 1976.

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