The International Labour Organisation is a specialised agency of the United Nations and has its seat in Geneva, Switzerland. In a recent report, Eurozone Job crisis; trends and policy responses, the body entered the political debate about austerity cuts within the EU. The main point of the report was that the EU risks losing a further 4.5 million jobs (a further quarter of the current unemployed total) over the next four years if current fiscal policies remain unchanged.
The driver for the current austerity measures is not really a newly discovered political conscience that has decided it is morally wrong to saddle our descendants with huge debts. Rather it is the ratings agencies who have downgraded the credit ratings of the most indebted nations, forcing up their borrowing costs and raising the spectre of sovereign default. To assuage investors, governments need to tackle their debt mountains so as to keep borrowing costs within “reasonable” levels. There are only two ways in which this can be achieved; firstly by increasing the revenue of the exchequer by higher taxes (or by stimulating growth such that more tax is received across the board), or by cutting expenditure.
The Germans, British, Spanish, Irish, and Portuguese – to name but a few – have embarked on austerity measures which are designed to cut public expenditure, raise taxes and so reduce the public deficit to more manageable levels. However, these measures are unpopular with voters who bare the brunt of them. France was behind this move too, but the incoming administration is opposed to further austerity measures and wants to stimulate its way to growth. In Greece too, the people have clearly had enough of austerity.
The ILO report will fuel the debate that says austerity provokes too much unemployment and social hardship to be an acceptable solution. Whilst a return to the idea of putting everything “on the slate”, cannot be allowed, it does seem that deficit reduction measures must be tempered such that they can be achieved without forcing millions of people into hardship. A more rational course of behaviour from the financial and investment community is surely called for. The situation of enormous public deficits and frighteningly large public debt did not occur overnight. Clearly, the problem will not have an instant fix either – what is called for is sustainable debt reduction married to strategies to restore confidence and boost economic growth.