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Business

A wave of austerity measures engulfs struggling EU economies

Text by FRANCE 24

Latest update : 2010-05-26

Following in the footsteps of Greece, Spain and Portugal, Italy and Great Britain have announced plans to significantly reduce their public deficits. FRANCE 24 takes a look at Europe’s austerity measures.

As a result of the Greek debt crisis, more and more European nations are launching plans to reduce their public deficits. Risking the wrath of trade unions and the population at large, one country after another has announced austerity plans aimed at streamlining the budget and reassuring markets.

Italy's cabinet approved an austerity package on May 25 aimed at cutting the budget deficit by €24 billion in 2011 and 2012, to 2.7 percent of GDP in 2012. The deficit stood at 5.3 percent last year.
 
The approved measures include cuts in funding to municipal and regional governments, a three-year freeze on pay rises in the public sector and plans to replace only 20 percent of the civil servants who leave, and a three- or six-month delay in retirement for those planning to retire in 2011. All government ministries will also be required to cut spending by 10 percent per year in 2011 and 2012. Economy Minister Giulio Tremonti has, however, ruled out raising taxes.
 
On May 24 word came from London regarding plans to reduce the United Kingdom’s public expenditures by €7.3 billion in this fiscal year. Conservative Prime Minister David Cameron’s new coalition government with the centre-left Liberal Democrats has announced a freeze on public sector hiring and cuts to ministerial budgets – measures that have outraged the unions, which have denounced a return to Thatcherism. George Osborne, the finance minister, has already warned that more drastic measures will be announced on June 22 when an emergency budget is announced to try to rein in a public deficit that has swelled to more than 11 percent of GDP.
 
Spain’s government adopted a series of unpopular austerity measures on May 20 in a bid to save €15 billion this year and next. The move followed a previous austerity plan approved in January worth €50 billion. Madrid is trying to reduce its annual deficit, which reached 11.2 percent of GDP in 2009, to approximately 6 percent in 2011 and then to 3 percent in 2013. The announced measures include a 5 percent wage cut for civil servants, reductions in state investments and a freeze on the automatic revaluation of retirements in 2011.
 
A few days after Spain’s latest announcement, the International Monetary Fund (IMF) called on Madrid to introduce “urgent” reforms to tackle endemic unemployment and revamp its banking system. 
 
Grappling with a rise in the value-added tax (VAT), a reduction in public wages and expenses, and the introduction of an additional tax on corporate profits exceeding €2 million, Portugal has not escaped financial difficulties. Prime Minister Jose Socrates announced budget plans on May 13 that he said were “fundamental to defend Portugal’s economy, but also to defend Europe and the eurozone”. The trade unions reacted by calling a strike for May 29.
 
In Greece, where the financial crises now gripping Europe all began, a succession of general strikes has followed the government’s announcement of the austerity measures it plans to implement, despite the approval of a historic aid package worth €750 billion from the European Union and the IMF. On May 20, the fourth general strike in as many months once again threw the public sector and public transport into disarray.
 
Retirement reform is at the heart of the austerity plan proposed by Prime Minister George Papandreou. The minimum age of retirement is set to rise from 61.4 years to 63.5 years by 2015, whereas pensions will be reduced by an average of 7 percent between now and 2030. The Greek plan, which it is hoped will reduce its enormous €300 billion debt, will also introduce new taxes on fuel, electricity, alcohol and gambling – no sector, it seems, has escaped the tax man’s notice.
 
Ireland – considered, along with Greece, Spain and Portugal, to be one of the “weak links" of the European Union – introduced austerity plans as early as 2008 that included a general reduction in social spending and a 5 to 15 percent cut in civil servant wages. Dublin plans to continue these measures as it struggles under the weight of a massive deficit expected to near 20 percent of GDP in 2011.
 
As for France, retirement issues also lie at the centre of the debate over reform with the government seemingly committed to rolling back the retirement age, which is currently set at 60. President Nicolas Sarkozy last week announced that reducing the budget was a “national priority”. Paris – which promised Brussels it would limit its deficit to 6 percent in 2011 and 4.6 percent in 2012 – will register a record deficit of 8 percent of GDP this year. Whereas some might fear austerity measures could undermine a nascent economic recovery, Sarkozy insists that tackling the budget is “not incompatible with a strategy for growth”.
 
According to an Infraforce poll published on May 25, more than 90 percent of the French believe that the financial crisis will affect all aspects of their daily lives, particularly regarding unemployment and their retirement plans. Some 78 percent are convinced that the government will soon be introducing a system of austerity measures in line with those of their European neighbours.
 

 

Date created : 2010-05-26

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