A fall in average deficits in the Eurozone and the European Union in 2013 sounds like good news, but lift the hood and the picture is not so pretty. Total debt in the Eurozone (17 countries) increased to 92.6 percent of gross domestic product from 90.7 percent in 2012, ever further above the European Union’s Maastricht limit of 60 percent. For the whole EU, debt increased from 85.2 percent of GDP to 87.1 percent. Obviously these figures reflect a mismatch between income and expenditure. It’s not however the case that public expenditure increased everywhere: although in France public spending reached a record 57.1 percent of GDP, overall EU public spending fell marginally to just less than 50 percent. Alongside increases in debt, the falls in deficits merely testify to a concomitant increase in tax revenues which ate into the gap between incomings and outgoings.
At a time when politicians across Europe are making great play of an oncoming revival, these figures are scary indeed, and are matched by figures for unemployment, which show EU jobless down barely perceptibly from 12 percent to 11.9 percent in the last 12 months.
Such marginal falls in key economic indicators are on the level of rounding errors, and the deficit reductions are almost wholly due to an increase in tax revenues of nearly one percent, which has got more to do with increased efforts on the part of Finance Ministers to pull in extra revenue with new taxes and improved compliance than to the consequences of any overall economic advance.
What is to be done?
National governments in Europe are palpably failing to deal with the crisis, with possibly the partial exception of the UK, although its 5.4 percent deficit and increasing public debt are hardly the stuff of miracles. Otherwise, the only countries in which real change is taking place are those where the feared Troika is imposing harsh measures, being primarily Greece and Cyprus, with Ireland and Portugal further on into their much milder purgatorial regimes, which may or may not have done enough to bring about any permanent improvement to their overall fiscal landscapes.
You can argue over whether the creation of the euro has been to blame for the current dire situation, or whether the errant countries brought on their own nemeses by trying to save their banks, or whether it has been a straightforward demonstration of populism by insouciant politicians, but it seems inescapable that democratic government as it has been practised lately in Europe has failed its populations. Now that the damage has been done, people are simply not going to vote for their own impoverishment, even if that is in reality the only path left to them in a situation of overwhelming indebtedness. A non-democratic solution is required, and the Troika, as a benevolent despot, fits the role. It may or may not be successful in saving its patients, but one has to accept that its existence with such Draconian powers is a denial of democracy.
No-one dares to face this new paradigm squarely. There is a comfortable belief that it will all blow over, and we will soon be back to the days of surpluses, growth, wine and roses. Well it ain’t so. I don’t suppose that there will be a return to fascism, as happened in the 1920s and 1930s, the last time that the status quo broke down irretrievably, only because the population of Europe, including its central bankers, economists and administrators is now far better educated and considerably less economically illiterate than was the case 100 years ago. But as to what will replace the broken model of statist bread and circuses, I have no guesses. Long-term, genteel decline seems the least horrible of the possibilities.