Austerity-Driven Social Unrest Spreading through Europe

Austerity continues to ravage Europe. After having bombarded Greece with austerity mandates, the EU, the ECB and the IMF moved on to Portugal, Italy and Spain where their measures also brought depression-like downturns in the economy. In April similar measures led to the downfall of the Dutch government, and the French chose to elect a socialist goverment over an austerity-minded center-right government.

The French solution is of course no solution. All it does is blow smoke screens and make people believe you can keep growing government with impunity. That is of course impossible, which the French will soon find out the hard way. Nevertheless, the social despair that follows in the footprints of austerity is spreading and could lead to a large-scale shift in European politics in the same direction that French voters pointed to. Let’s not forget that four out of every ten Greek voters supported authoritarian parties in the June election, and that the current administration is basically governing with razor-thin margins.

But Greece is not the only example. Spain is in trouble. Austerity has provoked social unrest and provincial separatism of a kind not seen since the years after the Franco dictatorship fell. And now Portuguese voters are expressing their frustration with yet another round of higher taxes and spending cuts. ABC News reports:

Income taxes will go up next year, Vitor Gaspar said. Public employees will lose either their Christmas or vacation bonus, each roughly equivalent to a month’s income, and many pensioners will lose both. More public employees will join the dole queue. Last year was tough enough, especially for public employees, whose salaries were cut by up to 10 percent as they lost their two bonuses. Meanwhile, property and sales taxes went up, and tax deductions and welfare entitlements went down for everyone. To top it off, the recession, which the government predicted would bottom out this year, will continue into next.

How surprising. When you subject an economy to austerity, things only get worse. But the Portuguese government does not even have to read this blog – all they need to do is look at Greece, where the economy has been tormented by austerity for three years now. That economy is now in macroeconomic free-fall, shrinking by a depression-level seven percent this year.

According to Reuters, Portugal is now also suffering its fair share of social unrest, a direct response to the government’s austerity policies:

Over 150,000 Portuguese marched on Saturday against planned tax hikes that have shattered the consensus behind austerity imposed by an EU/IMF bailout, and tens of thousands more marched in Spain, seen as the next country needing to be bailed out. The rallies in Portugal were mostly incident-free, but a young protester of about 20 was taken to hospital with burns after an attempted self-immolation during the protests in the northern town of Aveiro. RTP television quoted firemen as saying his life was not in danger. Organized via the Internet, the rallies brought together Portuguese from all walks of life, chanting: “Out of here! IMF is hunger and misery!” and calling on the centre-right government to resign. The rally ended at the vast Square of Spain near the Spanish embassy to express solidarity with protesters across the border in Spain after tens of thousands rallied in Madrid earlier on Saturday against spending cuts and tax rises. A huge rally was held in Porto and smaller ones in other cities and towns.

The real concern here is not the protests, but the radical message they carry. Just like in Greece, voters in Portugal could very well throw their support behind very radical parties. In last year’s election three leftist parties – to the left of the mainstream European social democrats – gathered 41 percent of all votes. These three parties share a disdain for the market economy and for economic freedom, with one of them being an outright Leninist communist party.

So long as the free-market economy is being blamed for the current crisis – as opposed to the welfare state which is the real culprit with its excessive spending programs – this kind of parties will continue to grow all across Europe. This just a bit more than two decades after the fall of the Berlin Wall.

Back to the Reuters report:

“People are fed up with being robbed by this government’s policy, which now threatens to strangle us,” said bank worker Joao Pascual, 56, marching in Lisbon. Andre Pestana, a 35-year-old unemployed teacher, said: “It’s time to say enough to robbery and lies. The government has failed on all its promises … I hope this rally is the first step in the process of changing things.”

At least people are beginning to realize that government has broken its promises. The problem now is that they are drawing exactly the wrong conclusions from their analysis. They want government to restore its spending and keep its promises, when in reality those very promises where what drove the car into the ditch in the first place. Therefore, it is of great concern that the austerity policies may actually bring Portugal to a situation similar to that which earlier this year caused a new election in the Netherlands: as austerity wreaks havoc on the economy, support for the measures fades away and a fragile majority party coalition in the national parliament falls apart.

A new election, should it become reality, would have serious consequences. As the Reuters story explains, it is already now difficult to govern Portugal:

On Thursday, the main opposition Socialists threatened to end cross-party backing for the 78-billion-euro bailout by voting against the 2013 draft budget unless the government drops its planned increase in the social security levy for all workers to 18 percent from 11 percent. Broad political consensus behind austerity had until now differentiated Portugal from other euro zone strugglers like Greece, the scene of frequent unrest over austerity. The government will not present the draft budget until mid-October and many protesters said they hoped the administration would rethink its policy. Two opinion polls, including one by Eurosondagem pollsters published on Saturday, have shown support for the ruling centre-right Social Democrats falling behind the Socialists for the first time since the June 2011 election.

So long as the only alternative considered is more austerity – as opposed to structural spending cuts that reform away the welfare state – Portugal is heading down the dangerous slope of an accelerated recession, more unemployment and even tougher deficits.  Some Portuguese politicians seem to realize that this means borrowing more than a page from Greece. That insight is far from sufficient to prevent Portugal from becoming a new Greece, but it might help. And even a first, rudimentary insight is a step in the right direction. After all, as France E24 reports, the Greek are now so desperate that they are begging the EU for an extension of their current austerity mandates:

Greece needs a two-year extension from its international creditors to meet fiscal pledges, and a liquidity boost from the European Central Bank, said Prime Minister Antonis Samaras. In a Washington Post interview appearing in Greece on Saturday, Samaras said the recession-hit country was determined to adopt a new austerity package worth 11.7 billion euros ($15 billion) to avoid leaving the eurozone. But he said the programme should apply over four years instead of the currently agreed timeframe of two years — his most specific extension request in weeks. “Instead of the 11.7-billion-euro package taking place over two years, it would be best if it were to take place over four years,” the prime minister said. “We are talking about an extension to 2016,” he said.

Greece and Portugal are not the only countries to keep an eye out here. Hungary is also on the list, and the Hungarians are apparently balking at austerity for “Greek” reasons. Perhaps the prospect of social unrest and political radicalization spreading to countries like Hungary is enough to explain why the EU appears ready to give Greece its extension, and thus concede that hard-line austerity comes with a price tag.

The only way to save Europe is to do away with the welfare state and build a new economy based on economic freedom. For every month of new austerity measures in new countries, this looks like an increasingly remote alternative. Instead of considering this alternative, Europe’s political leaders double down on their austerity policies. The only “relief” they are willing to consider is a slowdown of the tightening macroeconomic choke hold.

With that narrow a vision, the only future that lies ahead for Europe is spelled “Weimar”.