06 February 2013

ECON Committee: Austerity vs growth - MEPs clash over best way to tackle crisis

To find out their reasons, we pitted two economic committee members on opposite sides of the issue against each other: Elisa Ferreira and Jean-Paul Gauzès.

A recent study by the International Monetary Fund (IMF) concluded that the negative effects of austerity on jobs and growth have been underestimated. Do you think the EU's economic policy that was adopted in the past was wrong?

Ms Ferreira, a Portuguese member of the S&D group, said: "Cuts in government spending affect investment and spending. The IMF has realised that they have seriously underestimated this negative effect, but the European Commission has not taken this into account. That is why we have not seen the desired effect from the fiscal adjustment process, budget deficits have not improved sufficiently and we risk getting into a vicious circle of recession and rising debt.

"Alternative research by universities in Germany, France and Denmark has shown that if we set our objectives at half the austerity effort that has been asked, we will achieve an average growth of 0.7 per cent in the eurozone. It is an economic debate and we should not stay out of it for ideological reasons."

Mr Gauzès, a French member of the EPP group, said: "The EU's economic policy is not wrong, on the contrary. It is now starting to produce results. The IMF study is lot more nuanced than the question suggests. It insists it is necessary to improve the sustainability of public finances and to pursue structural reforms, even if some negative effects are more significant than initially expected.

"Economists often get their predictions wrong so we should not take their opinions as gospel truth, especially not seeing how they often disagree with each other."

What should  the main priority of the European economic policy be now: cutting budget deficits or fighting unemployment?

Ms Ferreira said: "We should spread the adjustment over a longer period of time to ensure sustainable recovery. It cannot be a process imposed on countries. It should be agreed together."

Mr Gauzès said: "In fact these two goals go hand in hand. It won't be possible to achieve growth and tackle unemployment without cutting budget deficits and stabilising our finances. If it had not been for European support and measures, several countries would no longer have had the money today to pay for pensions or the salaries of civil servants. By cutting the budget and embarking on structural reforms, these countries are able to regain competitiveness and create employment again."

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