The idea of EU austerity is a myth

EU Voters Nix Austerity, Though It's Not Been Tried

The stunning outcomes of elections in France, Greece and Italy were called "a sweeping repudiation" of austerity by more than one media outlet. But how can you repudiate something that's never been tried?

By IBD Editorial

The EU tried austerity, but it didn't work. The media and Europe's beleaguered leftist politicians have made that their refrain, and apparently a lot of European voters now agree.

How else can you explain why French Socialist Francois Hollande ousted centrist incumbent Nicolas Sarkozy in Sunday's election — and why anti-austerity parties on the left and right made gains in Greece's parliamentary elections over the weekend?

Now, the left's argument goes, a new "growth strategy" premised on more government spending, not less, is needed — just like in Spain, Greece and Italy.

The only problem: The idea of EU austerity is a myth.

In fact, despite a lot of wailing, very few cuts have actually been made in Europe. Austerity? Starting in 2008, most governments enacted large stimulus packages.

Sadly, stimulus in Europe, as in the U.S., didn't work. As proof, the EU has now entered into its second recession in four years, with soaring debt, rising unemployment and few prospects for future growth.

Austerity? Spending has boomed in the EU over the last decade. During the 2000s, EU member nations collectively boosted government outlays by 62%. Average government spending by EU nations today stands at about 49.2% of GDP — vs. 44.8% in 2000.

On its own website, the EU itself ridicules the notion of government austerity as a "myth."

"National budgets are NOT decreasing their spending, they are increasing it," the EU says, noting that in 2011, 23 of the 27 nations in the EU increased spending. This year, 24 of 27 will do so.

Did that decade-long spending increase boost GDP growth? No. During the 2000s, average annual GDP growth in the EU fell to 1.2% from 2.2% in the 1990s.

So the idea that Europeans are "tired" of austerity is false. You can't be tired of something you haven't tried. This is why an exasperated German Chancellor Angela Merkel said Monday she'll continue to demand that other countries make real cuts in spending.

She may be swimming against the tide. Hollande has a 60-point agenda that includes raising taxes on the rich to 75% from 41%, hiking corporate tax rates, boosting government spending and hiring more government workers in a bid to "restore growth."

Meanwhile, in Greece, the winners in Sunday's parliamentary elections likewise seek an end to austerity — and a return to Greece's generous welfare state.

It's a big mistake. Spending cuts, not increases, are the best way to cut deficits and restore growth. And that's not just our opinion. In their 2009 study of fiscal crises in 27 countries over 37 years, the largest study of its kind, economists Alessandro Alesina and Silvia Ardag-na found "tax cuts are more likely to increase growth than those based upon spending increases."

If the EU continues on its current course, it won't be long before it breaks up. Its only hope is to end the EU's failed welfare-state experiment, cut spending and taxes, and watch their economies bloom again.