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Angela Merkel’s mania for austerity is destroying Europe, says Mehdi Hasan

The German Chancellor is terminating growth and pushing us towards a new Depression.

Which world leader poses the biggest threat to global order and prosperity? The Iranian president, Mahmoud Ahmadinejad? Wrong. Israel’s prime minister, Binyamin Netanyahu? Nope. North Korea’s Kim Jong-un? Wrong again.

The answer is a mild-mannered opera fan and former chemist who has been in office for seven years. Yes, step forward, Chancellor Angela Merkel of Germany, whose solution to Europe’s financial crisis – or lack thereof – has brought the continent, and perhaps the world, to the edge of a second Great Depression. “World Bank warns that euro collapse could spark global crisis”, read the headline on the front of the Observer on 17 June.

With apologies to Mike Godwin and his eponymous law, Merkel is the most dangerous German leader since Hitler. Her eight predecessors – from Konrad Adenauer to Gerhard Schröder – presided over a manufacturing miracle at home and the rehabilitation of Germany’s reputation abroad. Under Merkel, however, the country finds itself isolated once again, loathed and feared in equal measure.

Cartoons in the newspapers of Germany’s neighbours have depicted the chancellor with a Hitler moustache or wearing a spiked, Bismarck-era military helmet. Commenting on the phenomenon, the columnist Jakob Augstein observed: “Her abrasive pro-austerity policies threaten everything that previous German governments had accomplished since World War II.” Merkel, Augstein rightly noted, is “a radical politician, not a conservative one”.

Neighbourhood bully

Merkel did not cause the financial crisis; that (dis)honour still belongs to the world’s “top” bankers. But her deficit fetishism and obsession with spending cuts are exacerbating the continent-wide debt-and-growth crises that threaten to upset more than six decades of pan-European unity and stability.

Then there is her bullying tendency. The majority of Greeks voted on 17 June either to delay or to cancel the EU-imposed austerity plan; up popped Merkel the next day to warn: “No departures can be made from the reform measures . . . We have to count on Greece sticking to its commitments” – and to slap down her foreign minister, who had suggested that the EU might give Greece more time to do cuts.

Merkel prefers to fiddle as Athens burns – and Madrid and Rome, too. Youth unemployment in Spain and Greece is hovering around 50 per cent; in Italy, a third of 15-to-24-year-olds are out of work. Riots beckon as Europe’s far right attracts new supporters. It is ironic that the leader of a nation paranoid about and offended by any mention of its Nazi period seems so relaxed about the rise of anti-austerity, neo-Nazi parties across the EU, from Marine Le Pen’s National Front in France to Greece’s black-shirted Golden Dawn to the fascists of Jobbik, now the third-largest party in Hungary’s parliament.

Merkel’s supporters argue that this is unfair. She is, they say, standing up for hard-working Germans who are weary of bailing out their feckless southern European neighbours. This is nonsense. First, figures released by the OECD show that the “lazy” Greek worker labours for 2,017 hours per year, which is more than the average in any other EU nation – and more than 40 per cent longer than the average German works. So a little less Schadenfreude, please.

Second, it isn’t just southern Europeans who are revolting against fiscal sadism. In May, Mer­kel’s Christian Democrats suffered a humiliating defeat in an election in Germany’s most populous state, North Rhine-Westphalia. It was the party’s worst result in the state since the Second World War. Ordinary Germans are starting to acknowledge that austerity isn’t working.

But Merkel won’t budge. She is a purveyor of the conventional wisdom which says that the economy is like a household that can’t borrow or spend more than it earns. But economies are not households – or credit cards! – and common sense tells us that the solution to a downturn caused by a prolonged drought in demand is not to reduce demand further (by slashing spending). History teaches us that the Great Depression wasn’t helped by Herbert Hoover’s cuts in the US and, in pre-war Germany, it was mass unemployment, not hyperinflation, that propelled Hitler to power in 1933.

Fiscal self-flagellation

In a study published in 2010, analysts at the International Monetary Fund found just two cases, out of 170 examples across 15 advanced economies between 1980 and 2009, in which cuts in government spending turned out to be expansionary for the economy overall. They concluded: “Fiscal consolidation typically has a contractionary effect on output.”

Merkel’s insistence on fiscal self-flagellation, her unwillingness to countenance any fiscal stimulus by Germany or an easy-money policy by the European Central Bank, have pushed depressed countries such as Greece further into depression. The recent announcement at the G20 summit in Mexico that Merkel may now be willing to allow eurozone institutions to buy up the debt of crisis-hit member countries is too little, too late.

This isn’t just about geopolitics or macro­economics. Europe’s austerians have blood on their hands. Suicide rates are up by 40 per cent in Greece; the birthplace of western democracy is being remorselessly reduced to the status of a developing country. Meanwhile, Merkel, as the US economist Robert Kuttner wrote earlier this month, “continues to pursue Germany’s narrow self-interest . . . [because] Germany benefits from the rest of Europe’s suf­fering in two ways – expanded exports and dirt-cheap money”.

In denial and bent on austerity über alles, Merkel is destroying the European project, pauperising Germany’s neighbours and risking a new global depression.

She must be stopped. 

Mehdi Hasan is the author of the ebook “The Debt Delusion” (Vintage Digital, £3.74). For the New Statesman's position on the Eurozone crisis, read our leader here.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 25 June 2012 issue of the New Statesman, Europe’s most dangerous leader

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The Conservatives have failed on home ownership. Here's how Labour can do better

Far from helping first-time buyers, the government is robbing Peter to pay Paul

Making it easier for people to own their own first home is something to be celebrated. Most families would love to have the financial stability and permanency of home ownership. But the plans announced today to build 200,000 ‘starter homes’ are too little, too late.

The dire housing situation of our Greater London constituency of Mitcham & Morden is an indicator of the crisis across the country. In our area, house prices have increased by a staggering 42 per cent over the last three years alone, while the cost of private rent has increased by 22 per cent. Meanwhile, over 8200 residents are on the housing register, families on low incomes bidding for the small number of affordable housing in the area. In sum, these issues are making our area increasingly unaffordable for buyers, private renters and those in need of social and council housing.

But under these new plans, which sweep away planning rules that require property developers to build affordable homes for rent in order to increase the building homes for first-time buyers, a game of political smoke and mirrors is being conducted. Both renters and first-time buyers are desperately in need of government help, and a policy that pits the two against one another is robbing Peter to pay Paul. We need homes both to rent and to buy.

The fact is, removing the compulsion to provide properties for affordable rent will be disastrous for the many who cannot afford to buy. Presently, over half of the UK’s affordable homes are now built as part of private sector housing developments. Now this is going to be rolled back, and local government funds are increasingly being cut while housing associations are losing incentives to build, we have to ask ourselves, who will build the affordable properties we need to rent?

On top of this, these new houses are anything but ‘affordable’. The starter homes would be sold at a discount of 20 per cent, which is not insignificant. However, the policy is a non-starter for families on typical wages across most of the country, not just in London where the situation is even worse. Analysis by Shelter has demonstrated that families working for average local earnings will be priced out of these ‘affordable’ properties in 58 per cent of local authorities by 2020. On top of this, families earning George Osborne’s new ‘National Living Wage’ will still be priced out of 98 per cent of the country.

So who is this scheme for? Clearly not typical earners. A couple in London will need to earn £76,957 in London and £50,266 in the rest of the country to benefit from this new policy, indicating that ‘starter homes’ are for the benefit of wealthy, young professionals only.

Meanwhile, the home-owning prospects of working families on middle and low incomes will be squeezed further as the ‘Starter Homes’ discounts are funded by eliminating the affordable housing obligations of private property developers, who are presently generating homes for social housing tenants and shared ownership. These more affordable rental properties will now be replaced in essence with properties that most people will never be able to afford. It is great to help high earners own their own first homes, but it is not acceptable to do so at the expense of the prospects of middle and low earners.

We desperately want to see more first-time home owners, so that working people can work towards something solid and as financially stable as possible, rather than being at the mercy of private landlords.

But this policy should be a welcome addition to the existing range of affordable housing, rather than seeking to replace them.

As the New Statesman has already noted, the announcement is bad policy, but great politics for the Conservatives. Cameron sounds as if he is radically redressing housing crisis, while actually only really making the crisis better for high earners and large property developers who will ultimately be making a larger profit.

The Conservatives are also redefining what the priorities of “affordable housing” are, for obviously political reasons, as they are convinced that homeowners are more likely to vote for them - and that renters are not. In total, we believe this is indicative of crude political manoeuvring, meaning ordinary, working people lose out, again and again.

Labour needs to be careful in its criticism of the plans. We must absolutely fight the flawed logic of a policy that strengthens the situation of those lucky enough to already have the upper hand, at the literal expense of everyone else. But we need to do so while demonstrating that we understand and intrinsically share the universal aspiration of home security and permanency.

We need to fight for our own alternative that will broaden housing aspirations, rather than limit them, and demonstrate in Labour councils nationwide how we will fight for them. We can do this by fighting for shared ownership, ‘flexi-rent’ products, and rent-to-buy models that will make home ownership a reality for people on average incomes, alongside those earning most.

For instance, Merton council have worked in partnership with the Y:Cube development, which has just completed thirty-six factory-built, pre-fabricated, affordable apartments. The development was relatively low cost, constructed off-site, and the apartments are rented out at 65 per cent of the area’s market rent, while also being compact and energy efficient, with low maintenance costs for the tenant. Excellent developments like this also offer a real social investment for investors, while providing a solid return too: in short, profitability with a strong social conscience, fulfilling the housing needs of young renters.

First-time ownership is rapidly becoming a luxury that fewer and fewer of us will ever afford. But all hard-working people deserve a shot at it, something that the new Conservative government struggle to understand.