If left unchecked, austerity policies could put between 15 and 25 million more Europeans at risk of poverty by 2025 – nearing the population of the Netherlands and Austria combined. This would bring the number of people at risk of poverty in Europe up to 146 million, over a quarter of the population, warns international agency Oxfam as EU Finance Ministers meet in Vilnius tomorrow.
Oxfam’s new report, A Cautionary Tale, finds that austerity measures introduced to balance the books following the €4.5 trillion bank bail-out are instead causing more poverty and inequality that could last for the next two decades.
Meanwhile, austerity is failing to cut debt ratios, as it was supposed to, or trigger inclusive economic growth.
Oxfam says that there are alternatives to austerity policies by drawing lessons from the calamitous periods of austerity cuts to social spending in Latin America, South East Asia and Africa throughout the 1980s and 90s. Some countries in these regions took two decades to claw their way back to square one.
Natalia Alonso, Head of Oxfam’s EU Office, said: “Europe’s handling of the economic crisis threatens to roll-back decades of social rights. Aggressive cuts to social security, health and education, fewer rights for workers and unfair taxation are trapping millions of Europeans in a circle of poverty that could last for generations. It is moral and economic nonsense.”
Living standards down, inequality up
It could take Europeans up to 25 years to regain the living standards they enjoyed five years ago.
“The only people benefiting from austerity are the richest 10% of Europeans who alone have seen their wealth rise. Greece, Ireland, Italy, Portugal, Spain and the UK – countries that are most aggressively pursuing austerity measures – will soon rank amongst the most unequal in the world if their leaders don’t change course. For example, the gap between rich and poor in the UK and Spain could become the same as in South Sudan or Paraguay,” added Alonso.
Three years on, leading proponents of austerity such as the International Monetary Fund and many respected economists are starting to recognise that these measures have not only failed to achieve their objective to shrink government debt and budget deficits, but have also increased inequality and stunted economic growth.
Unemployment in many European countries is hitting record highs. Women and young people are being hit hardest. In the UK, more than 1 million public sector jobs will be cut by 2018, and twice as many women than men will lose their jobs. Wages are falling fastest in countries facing the harshest austerity prescriptions. Almost one in ten working households in Europe now live in poverty and it could get much worse. For example, tough mortgage laws in Spain let banks to evict 115 families from their homes every working day. Even those in work will be significantly poorer than their parents. Child poverty across Europe is set to rise.
Lessons from the past
“History is repeating itself. Our leaders are ignoring the profound pain that austerity cutbacks had for many years on people in Latin America, South East Asia and Africa in the 1980s and 90s. Their economies shattered and the poor continued getting poorer even when growth made a come-back,” Alonso said. Basic services, such as education and health, were cut or privatized, excluding the poorest and hitting women hardest. As a result, the gap between rich and poor widened.
In Indonesia, it took 10 years for poverty to return to 1997 levels, while in some Latin American countries it took 25 years to bring levels of poverty back down to where they were before their crises began in 1981. “Europe is heading in this direction now,” Alonso said.
Alternatives to austerity
“There are alternatives to austerity. Ahead of tomorrow’s EU Finance Ministers’ meeting, we’re calling on European governments to champion a new economic and social model that invests in people, strengthens democracy and pursues fair taxation. Governments could raise billions for public services, such as health and education, by taxing the wealthiest and cracking down on tax dodging.”
“A new model of prosperity is possible. Investing in schools, hospitals, housing, research and technology, millions of Europeans could be put back to work and support a sustainable economy,” Alonso said.
Notes to Editors
The report, A Cautionary Tale: The true cost of austerity and inequality in Europe, is available in English, Spanish, French, and Italian.
Oxfam’s analysis is based on the EU’s official definition of poverty (source). In 2011, there were 121 million people at risk of poverty in the EU representing 24.3 per cent of the population (source). The Institute for Fiscal Studies predicted that poverty rates in the UK would increase by between 2.5 and 5 percentage points among various groups over 2010-2020 if austerity policies continued on current track (source). If the EU were to see a three per cent increase over the next twelve years to 2025, this would bring the number of people at risk of poverty to 14.963 million. If poverty rates were to increase by five percentage points across the EU this would represent an increase of 24.939 million.
Bolivia witnessed an increase of 16 percentage points in its net income inequality (after taxes and social transfers) over a period of six years following its structural adjustment program in the 1990s. Some countries have already experienced an increase in inequality since the implementation of austerity policies. If Greece, Ireland, Italy, Portugal, Spain and the UK saw an increase similar to Bolivia, their net inequality would rise to 0.47-0.51 points, making these countries amongst the most unequal in the world. The most recent estimate for Gini coefficients, which is an indicator of inequality, in South Sudan and Paraguay is 0.45 (2009) and 0.52 (2010) respectively (source).
Since the financial crisis hit five years ago, many of the countries deeply affected by austerity measures – Greece, Italy, Spain, Portugal and the UK – have seen one of two impacts: either the richest tenth of the population has seen their share of total income increase, or the poorest tenth has seen their share decrease. In some cases both impacts occurred. In other words, the richer are taking more, whilst the poor are taking less (source).
In the UK and Portugal, real wages are reported to have fallen by 3.2 per cent over 2010-2012 (source). The real value of wages in the UK is now at 2003 levels, representing a lost decade for the average worker (source). Italy, Spain, and Ireland all recorded decreases in real wages over this period. Greece has recorded a fall in real wages of over 10 per cent (source).