A triumph of failed ideas European models of capitalism in ... - Journal

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How do economic governance reforms and austerity measures affect inclusive growth.................................................................................................................................................................penditure and social payments). 17 Cuts in social payments are envisagedin the majority of member states, although they are most severe inIreland, Greece, Latvia, Hungary, Lithuania, Slovakia, Bulgaria, Estoniaand Romania, which are also among the countries with the highestproportion of the population at risk of poverty or exclusion. Ireland,Greece, Latvia and Romania have received financial help from the EUand/or the IMF and can thus be considered to have suffered a loss ofpolicymaking autonomy. This is not the case for Lithuania, Estonia,Slovakia and Bulgaria. Estonia was under pressure to demonstrate acommitment to sound public finances as it joined the euro in 2011, 18however, while Lithuania is in a similar situation as it has been hopingto adopt the euro since 2007. Interestingly, Latvia, Slovakia, Lithuania,Bulgaria, Romania and Estonia have all had and are projected to havepublic debt to GDP ratios well below the 60 per cent that the Stabilityand Growth Pact stipulates. This implies that there are few fundamentalconcerns about the sustainability of their public finances. There arecertainly concerns about the social exclusion of particular groups withintheir populations, however, and the planned cuts in social paymentsrisk aggravating the situation. Overall, the positive correlation betweenthe extent of poverty/social exclusion and the extent of the plannedretrenchment of social spending is profoundly worrying and completelyat odds with the EU poverty headline target.17. These figures are the only ones available for the current period and the near future. Itshould be noted that the Eurostat definition of social payments as used in Figure 8 isdifferent to the one used for the purposes of Stability and Convergence Programmes(see Figures 9 and 10) in that the former includes all costs associated with a socialpolicy programme (for example, administration costs), whereas the latter measures thepayments themselves only. That results in a discrepancy in the size of social paymentswhich is fairly large for some countries (such as Sweden, Denmark and Finland) butnot others. However, we think that, given the absence of more recent Eurostat dataand forecasts on these payments in the forthcoming years, this discrepancy does notaffect the analysis.18. Countries giving up their currency and monetary policy tools become vulnerable tofinancial markets’ beliefs about their capacity to carry on servicing their public debt, asthey lose control over their central bank. As the current crisis has shown, a marketbelief that a government cannot carry on servicing its debt can become a self-fulfillingprophecy, once market participants start requiring a higher interest rate in order tocontinue lending money to the government. See (DeGrauwe, 2011b).A triumph of failed ideas – European models of capitalism in the crisis 267
Janine Leschke, Sotiria Theodoropoulou and Andrew Watt.................................................................................................................................................................Figure 9 Risk of poverty or social exclusion (2009) and planned evolutionof social payments, 2010–2014 (%)50BG45ROPeople at-risk-of-poverty or social exclusion (% of tot. pop.)403530252015LVLTIEHUSKGREESEPLEU27UKDECZITESCYMT BEFRLUDKFI SIATNL10-30 -25 -20 -15 -10 -5 0 5Evolution of Social Payments (% change) 2010-2014Source: National Stability and Growth Programmes, DG Ecfin and Eurostat online database.To what extent are these planned social cuts in line with more generalcuts in public expenditure and how much do they reflect a plannedrolling back of the welfare state alone? Figure 10 shows how the plannedevolution of social expenditure compares to the planned evolution ofpublic spending between 2010 and 2014 according to the Stability andGrowth programmes of 2011. A few points stand out. First, the retreat ofthe welfare state within the framework of public spending retrenchmentis severest in Greece, Bulgaria and Romania. Greece and Latvia havereceived EU/IMF financial support and have therefore been following268 A triumph of failed ideas – European models of capitalism in the crisis
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Table of contentsSteffen LehndorffI
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After the party’s over:the Irish
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Hungary’s full-blown malaiseAndr
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Italy: Chronicle of a crisis foreto
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