Is European austerity a facade?

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Angelica Malik Contributor
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Many Europeans blame their economic hardships on “austerity,” but research shows that most countries have actually done little to reduce social welfare and other spending.

In fact, some countries in Europe have cut spending only slightly, others have stagnated budgets and some have actually increased spending.

Veronique de Rugy, a research fellow at the Mercatus Center, analyzed the spending of eurozone countries from 2000 to 2011. She found that countries widely cited as practicing austerity — including Spain, France, the United Kingdom and Greece — had not significantly cut spending.

According to de Rugy’s analysis, “austerity” is more about tax increases than spending cuts. Countries promising both have often increased taxes without decreasing spending, she found.

The Wall Street Journal reported in May that the U.K. had not implemented the majority of planned spending cuts, even though most tax increases were already in effect. According to the country’s treasury, about 70 percent of the cuts outlined by the government in 2010 lie ahead. Cuts are to be made by the end of 2015.

France, much like the U.K., did not reduce spending.

According to Eurostat, France racked up €1.119 trillion in total government spending in 2011, compared to €1.030 trillion in 2008 when austerity began. France ousted its conservative president, Nicholas Sarkozy, for his austerity push, but France was actually among the nations with the highest proportion of government spending relative to GDP, at 53 percent.

Greece and Spain had minor spending reductions weighed against their overall budgets.

Italy and Ireland reduced spending for a time, then reverted to increasing spending and ended up spending more than what had been cut in years prior.

“For some people, austerity means adopting a debt-reduction package made of a mix of spending cuts and tax increases,” de Rugy wrote.

Michael Tanner, a senior fellow at the Cato Institute, also ridiculed the so-called austerity in Europe.

“In France, for example, the so-called austerity largely consisted of raising taxes,” Tanner said. “Three percent surtax on incomes above €500,000, an increase of one percentage point in the top.”

Tanner added that new tax penalties actually failed to generate revenue, saying that the U.K.’s personal income tax increase on those making more than £150,000 a year “managed to actually decrease income-tax revenues by £509 million.”

New York Times columnist Paul Krugman sees it differently. Rejecting the idea that “failed austerity” isn’t really austerity at all, he wrote in May, “the fact is that you can’t just look at spending levels to ask what is happening to spending programs.”

Krugman added that welfare programs do not expand because government funding rises, but rather because “a lot more people are unemployed and poor.”

Some countries, however, have made heavy cuts to spending and left taxes untouched.

Estonia, for example, drastically cut spending and raised its retirement threshold. As a result, Estonia has a national debt of only six percent of GDP and is enjoying an economic boom. The economy grew 7.6 percent last year, five times the average of fellow Eurozone economies.

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