Austerity is Exacerbating the Crisis

Analysis of the Adaptation Programmes Reveals Policy Failures

In a comprehensive study for the Friedrich-Ebert-Stiftung Klaus Busch, Professor (retired) of European Studies at the University of Osnabrück, meticulously charts political crisis management since the beginning of the crisis in the Euro Area in 2010: »A manifold policy failure is evident during this brief time-period which exacerbated the crisis: the rejection of a debt guarantee for Greece; the deflationary adjustment programme that multiplied Greek problems; the debt haircut for Greece, which must be regarded as the cardinal policy error of the past two years; the inadequate leveraging of the EFSF; and the rejection of eurobonds and massive intervention on the part of the ECB.«

For the first three crisis countries under the European rescue umbrella – Greece, Ireland and Portugal – Busch analyses the economic consequences of the adaptation programmes agreed with the EU. In this it becomes clear that the austerity measures they settled on are merely driving up the debt ratio and stalling growth. In Greece, in particular, the adaptation programme is so severe that the rise in the government debt ratio from 2010 to 2012 is much higher than in the global economic crisis from 2007 to 2009. It is evident to Busch that the Maastricht Treaty already contained serious defects that have been magnified by the intransigence of the politicians involved: »Overcoming the euro-crisis calls for »more Europe«, not in the sense of Merkel and Sarkozy’s fiscal union, but rather in the sense of steps ranging from a Marshall Plan for Europe to a democratic economic government in the Eurozone.«

Busch, Klaus

Is the Euro failing?: Structural Problems and Policy Failures Bringing Europe to the Brink / Klaus Busch – Berlin: Friedrich-Ebert-Stiftung, International Policy Analysis, 2012, http://library.fes.de/pdf-files/id/ipa/09034.pdf

Also available in German (http://library.fes.de/pdf-files/id/ipa/08871.pdf) and Spanish (http://library.fes.de/pdf-files/iez/09081.pdf).