Most European Countries Haven't Implemented Austerity Measures

July 15, 2013

European governments that have cut both spending and taxes as part of their austerity programs have higher rates of economic growth than their neighbors. Then why do we hear lamentations from the news media and politicians about "savage" budget cuts leading Europe to economic ruin? Because they are looking at the data in the wrong way, says Matthew Melchiorre, the 2012-2013 Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute.

Many analyses cited in the U.S. news media select a base year for all countries from which to measure changes in spending, taxation and growth, which is usually 2007 or 2008.

  • This methodology is imprecise because not all European countries have implemented austerity programs at the same time.
  • Therefore, for many countries, measurements of austerity capture the time before they began making budget cuts.

Austerity in Europe takes many different forms. While countries label their policies with the common term "austerity," their actions are far from similar.

  • Only four countries in Europe have engaged in what can truly be considered austerity -- cutting both spending and taxes -- Bulgaria, Ireland, Latvia and Lithuania.
  • Instead, more countries have followed the opposite path -- increasing both spending and taxes. This does not qualify as austerity in any reasonable sense of the term.
  • Businesses bear all the burden of fiscal consolidation while governments bear none.
  • Contrary to popular belief, austerity is largely absent from Western Europe.

Much of the news media, unfortunately, tells a different narrative -- that shrinking the size of government has led to economic stagnation. Also fallacious are claims that significant cuts have occurred all across Europe. Rather than cutting out the heart of Europe's economies, downsizing their public sectors is cutting out the rot. And there are only a handful of European countries that have had the courage to do this.

European countries have reacted in different ways to the economic crisis that began in 2008. Those that have reduced the economic footprint of their public sectors have more prosperous economies. Curbing inefficiencies and getting government out of the way of businesses and entrepreneurs have allowed for greater productive economic activity to flourish. That is the real story of "austerity" in Europe.

Source: Matthew Melchiorre, "The True Story of European Austerity Cutting Taxes and Spending Leads to Renewed Growth," Competitive Enterprise Institute, June 26, 2013.

 

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