By Maxford Nelsen
For several years after the economic crash in 2008, leaders in Europe were heard calling for strict cuts in government spending and services, referred to as “austerity,” to offset their increasing debt and kick-start economic growth. Times have certainly changed.
U.S. and EU leaders are now calling austerity a failed experiment and are turning to so-called “growth policies.” By spending more, governments can revive their floundering economies and worry about paying the debt later. At least, that’s how the argument goes.
Unfortunately for Europe, austerity never failed and where it has been taken seriously, has produced impressive economic results.
According to Ambassador Terry Miller, director of the Center for International Trade and Economics at the Heritage Foundation, austerity was never seriously attempted. Referring to the nations of Western Europe, Ambassador Miller points out that “they didn’t try austerity, they only talked about austerity.”
Indeed, Lenwood Brooks of U.S. News and World Report explains that “countries in Europe are spending more today than they did before the 2008 crash, according to financial reports from the European Commission.”
The only “austerity” that has taken place has come in the form of higher taxes, which are particularly damaging in an already weak economic climate.
Furthermore, more government infrastructure spending is no solution. Gideon Rachman of the Financial Times argues that, “if building great roads and trains were the route to lasting prosperity, Greece and Spain would be booming. The past 30 years have seen a huge splurge in infrastructure spending.”
However, there have been certain countries, such as former Soviet states Latvia and Estonia, that have undertaken genuine austerity programs and seen great progress.
In response to the recession, public employees in Estonia “took a 10 percent pay cut and ministers saw 20 percent shaved from their salaries. The government raised the pension age, cut job protection and made it harder to claim health benefits,” according to Josephine Moulds of The Guardian. Similar steps were taken in Latvia, where the “government sacked 30 percent of public sector staff and slashed salaries by 40 percent.”
As a result, “Estonia is booming. The economy grew 7.6 percent last year, five times the euro-zone average,” writes Paul Ames for the Global Post. Latvia’s economy was the fastest-growing in Europe within two years, according to Moulds.
Some economists claim that the growth is simply due to the Baltic States’ proximity to Norwegian economies. They point out that Bulgaria, neighbor to troubled Greece, has implemented austerity policies but is not seeing the same success as the Baltics.
Miller, however, expressed skepticism with this explanation, pointing out that “Bulgaria started from much further back” economically. Consequently, it only makes sense that the Bulgarian economy still lags behind the Baltic states. “I don’t think that connection holds up,” Miller said regarding the geographic explanation.
Claims by the growth-through-spending crowd that austerity has failed are simply mistaken. As Miller points out and the Baltics illustrate, “austerity in government does not necessarily mean austerity in society. Austerity for government can create abundance in society.”
The only reason European leaders have taken to publicly trashing austerity is because of the strong public reaction against it. From riots in Greece to the election of anti-austerity socialist Francois Hollande to the French presidency, citizens of Europe have revolted against all the talk of austerity.
This reaction provides a striking contrast to the public’s response to austerity in Estonia and Latvia.
Moulds points out that, “while Greeks planted bombs at the prospect of economic reform, the Baltic citizens barely raised a whisper of complaint” and even went so far as to re-elect the politicians responsible for the austerity measures.
Miller believes the difference in attitudes is explained by the Baltics’ relatively recent liberation from communism. “Once you live through that, you don’t want to go back,” Miller said. On the other hand, Miller explains that in long-established Western democracies, “people will not willingly give up benefits they’ve had in the past.”
It turns out European leaders were right the first time: austerity is a viable and necessary means to restore economic health. With increasingly high debt of our own, the U.S. would be wise to part from Western Europe in renouncing austerity, and instead follow the Baltic’s example.
Max Nelsen is a senior political science student at Whitworth University, where he writes weekly op-eds for the campus newspaper.