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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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Ignore the spin - social housing is still under threat from the Conservatives

The Tory approach is the last thing we need, argues Tim Farron.

In my speech at the Liberal Democrat Conference a couple of weeks ago I made housing my number one priority and said that our party would oppose the forced sell off of housing association properties. We would use our influence in the Lords, working with peers in other parties, to defeat the government. I made it clear that Liberal Democrats were prepared to fight them tooth and nail on this dreadful policy.  This is not about dry housing policy, it’s about people. It’s about whether our children and grandchildren will be able to afford a home. I will not stand by as the government flogs off the houses they will one day need to live in. We need action now.

There were record numbers of people at conference listening to this speech, and also many watching on TV - not least, it seems, the Secretary of State for Communities and Local Government, Greg Clark.

So I was pleased to see that just days later the Government announced what sounded like a U-turn on its manifesto pledge. Instead of forcing housing associations to sell their properties under the right to buy extension, the government had asked them to decide whether to voluntarily opt in.

Liberal Democrats have long defended housing associations against the forced sell off, questioning the legitimacy of a government decision to force the sale of assets held by charities and not for profit companies. We believe in working with the sector not imposing change from above.

But don’t be fooled by Tory spin. While the voluntary nature of the proposal is a welcome change of heart by the government, critical issues remain. This is still an economically illiterate and socially divisive policy with devastating consequences, which was flung into the Conservative election campaign in a last minute attempt to grab some votes by invoking memories of Thatcher. 

Firstly, selling off housing association homes does nothing to address the national emergency in housing. The huge shortage of affordable homes in the UK causes millions of people to suffer on a daily basis, with 1.6 million people on social housing waiting lists, unable to get on with their lives. The government’s plans still mean giving huge cash handouts to a tiny minority, while making things worse for many others.

Secondly, the policy will be funded by selling off what the government considers ‘high value’ council houses which will slash affordable homes in crucial areas. These are not huge mansions but very ordinary homes, which happen to be in areas where house prices are soaring. The government’s approach should be to build more houses in those areas, not to force those living there out.

Thirdly, there is no requirement for replacement homes to be built in the same area as those sold off. This means affordable homes will be depleted in certain areas, breaking down communities and resulting in social cleansing as people are forced elsewhere. For a party that supposedly upholds family values, they seem completely ignorant of the fact that their policies rip them apart.

If the Tories are serious about tackling a national emergency like housing they need to take immediate action. I have called for bold measures to allow councils to borrow funds to build the homes we desperately need; to ban developers from advertising properties overseas before they advertise them in the UK; to establish a housing investment bank to boost house-building and to lay the groundwork for ten new Garden Cities.

We are at crisis point. We have ludicrous house prices, not enough affordable homes and an overheated private rented sector. The last thing we need is this homes sell off.

Tim Farron is leader of the Liberal Democrats.