‘Stupid’ austerity has played into the hands of populism

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

According to EURACTIV's Visegrad partners, Donald Trump is a mixed blessing for Central European states. [Joe Seer/ Shutterstock]

Europe’s refusal to do away with austerity policies contributed to a huge budget deficit in the US and a surplus in Europe. But that doesn’t mean we won, warn Ernest Maragall and Jordi Angusto.

Ernest Maragall is a Catalan MEP with the Greens/EFA group and sits on the European Parliament’s Committee on Budgets, while Jordi Angusto is an economist.

Time and again, the Obama Administration made no secret of their wish to see the EU reverse its austerity policies to help them boost the world economy. Something they could no longer achieve by themselves.

The EU’s answer was a resounding ‘nein’ and, as a result, the US closed its 2015 current account with a $450 billion external deficit, whilst the EU remained $350 billion in surplus.

So we were right then, and we’ve won, haven’t we? Don’t be so sure.

Austerity served the EU as a dumping strategy. By shrinking salaries and public investment we created enough competitiveness outside the demand we reduced internally. In other words we sustain our scarce and low paid jobs thanks to demand from other countries, mainly from the US, whilst taking jobs from them.

Unsurprisingly, those who’ve lost out in the US voted for a presidential candidate who promised them a brighter future by threatening to start a world trade war. Should we be afraid?

Aren’t we the ones who started this? Some would say that China started it, and whilst that’s nearer the truth, China has already reformed its economic model and its surplus today amounts to 2.5% of GDP whilst Germany’s stands at 9%. Furthermore, China took millions of its citizens out of poverty whilst the EU impoverished its citizens.

Carlo Cipolla, the Italian historian, divided human behaviour into four categories: smart, when one wins and benefits others; bandit, when one wins and others lose out; stupid, when everyone loses; and miserable, when one suffers and others wins.

Austerity perfectly fits into the ‘stupid’ category as an economic strategy that has impoverished us whilst making other countries even poorer – a classic example of ‘beggar thy neighbour’.

And this has played right into the hands of Brexiteers and their like: in the US, UK, France and across the EU. It’s time to react, we must decide whether to embrace a smart strategy or whether to continue getting poorer with the stupid one we have, as in the past.

Economic globalisation, in order to be fair and sustainable, requires global governance to guarantee that its profits lead to shared prosperity. A hopefully multilateral global governance, with world partners inter-dependent in the common good and with rules to avoid free riding: i.e. penalties for those who follow dumping/surplus strategies.

Without such a global agreement, we will inevitably see narrow ethnic nationalism and protectionism grow as we saw in the past, when trade wars turned into ugly, violent wars.

Let’s hope Trump’s victory is the wakeup call we need to adopt such a smart strategy.

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