The austerity vs. growth argument is hotting up

The G8 and eurozone summits show that leaders still have a long way to go.

With a G8 summit one week and an EU summit the next we have the latest act of a seemingly interminable eurozone crisis. The solutions needed now are almost exactly the same as a year ago: Europe's banks, particularly in Spain and France need to be re-capitalised; the European Central Bank needs to maintain its presence in the bond market; and, most importantly, we need a concerted stimulus programme aimed primarily at southern Europe to prevent a deep recession.

So, what’s new, you might ask.

Well, the G8 summit saw the first serious growth vs austerity battle, with Obama and Hollande leading the pro-stimulus camp against Angela Merkel. Although Merkel’s refusal to cave in to demands for, amongst other things, a relaxation of deficit reduction targets, Eurobonds and quantitative easing by the European Central Bank, is clear from the summit communique, she is becoming increasingly isolated. Later this week EU leaders will meet in Brussels for a mini-summit convened by Herman Van Rompuy, and it will be interesting to see whether Merkel’s stance softens or hardens.

The election results in France and Greece made it inevitable, but it is clear that the terms of debate have shifted in the last few weeks as politicians realise that the immediate priority is to escape recession rather than cut deficits.

This is not deficit denial but common sense. A sustainable debt and deficit reduction programme cannot be achieved in countries with shrinking output, and it is an economic nonsense to suggest otherwise. A quick glance across the Atlantic should offer some guidance. Things are not exactly rosy in the US, which is still wrestling with high debt and deficit levels, but, unlike the eurozone, US economic output is rising and unemployment falling. A report published last month by Oxford Economics and the rating agency Fitch claimed that President Obama's stimulus package has been worth an extra 4% of GDP and that, without it, the US economy would still be "mired in recession".

There is also a bit of wriggle room for a targeted stimulus. European Commission officials have been talking about providing an extra €10 billion to the European Investment Bank and allocating about €80 billion in unused structural funds to fund infrastructure projects in the EU. There is also widespread support for setting up joint liability EU ‘project bonds’.

Unfortunately putting these policies into action is still not quite that straight-forward. The G8 communique, with its telling phrase that “the right measures are not the same for each of us”, reveals the divide that still exists on how best to respond.

In fact, had that line been used two years ago Europe would probably have avoided the mess it now finds itself in. The biggest mistake made by the EU’s predominantly conservative leaders has been to insist that austerity and nothing else is the “right measure” for everybody.

But a closer look reveals that the EU countries facing difficulties all have different problems. Ireland was brought down by a property binge financed by its banks which were then left horribly exposed to sub-prime mortgages. Spain does not have high government debt but its banks hold multi-billion euro losses from real estate alongside dangerously high unemployment particularly among young people. Italy has one of the lowest budget deficits in Europe but a high debt to GDP ratio. Only Greece has deep-rooted structural problems. All of them would benefit from a targeted stimulus package which, unlike a diet consisting solely of cuts, would give them the economic stability needed for fiscal consolidation.

The main questions facing the EU are not about the fate of the euro. They are on how eurozone countries can generate the economic output to move towards balancing their books and, secondly, about the democratic legitimacy of applying the terms of the rescue packages.
A situation where unelected technocrat governments push through unpopular economic reforms is a dangerous recipe for civil unrest. Without a democratic mandate to implement the terms of their rescue programmes it is hard to see how they will be successful.

As yet, no country has had a referendum on the rescue programmes their leaders signed up to. Only in Spain and Portugal can it be argued that the governments have a mandate for cuts, while Ireland will vote on the fiscal compact treaty later this month. It might be in everyone's interest - both the creditor and debtor countries- for all the countries needing emergency support to hold national referendums on whether to remain in the euro. This would force politicians at national and European level to candidly weigh up the pros and cons of the recovery programmes and their membership of the euro.

The euro is - as it has been from the start - in the hands of Europe's leaders, who have so far been unwilling or unable to spell out the reality of the options open to their electorates. They need to be clear on three points: the structure of the single currency requires reform if it is to work; debt reduction is not optional; and austerity without growth is a road to ruin. The sooner politicians from creditor and debtor countries swallow their pride and correct their mistakes the better.

The G8 summit Photograph: Getty Images
Photo: Getty
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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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