(Photo: Lionel Charrier/MYOP)
Site of revolutions past, the teeming Place de la Bastille was a fitting location to fête France’s new Socialist president, François Hollande, the night of the May 6 election. Voters chanting “Sarko, it’s over” had rebelled with their ballots against the austerity policies set by the ousted Nicolas Sarkozy.
More and more it looks like France isn’t the only country to have lost faith in austerity as a cure for Europe’s current debt crisis. Greece’s May 6 election saw a swell of support for parties who say the mix of spending cuts and higher taxes demanded by the EU and the IMF has been too high a price to pay for bailout funds. With unemployment at more than 21% and an economy that shrank by 6.2% in the last quarter, ordinary Greeks have yet to see the benefits of belt-tightening. And in Spain, there are signs deep cuts have only made deficit problems worse.
Angry voters have some economists on their side. A recent IMF study looked at 173 episodes of austerity over the past 30 years, finding the policy “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”
The alternatives to austerity are far from appealing, however. If Greece returns to the drachma, it could strengthen the eurozone, but only if contagion to other countries is kept at bay. A Greek default would still send reverberations throughout the intertwined global markets. If wealthier EU countries fund a mega-bailout using reserves instead, Greece could stay in the eurozone and pay for some of its public services, and markets might rally.
At Hollande’s victory celebration, students called out “On a gagné” (We have won) late into the night. Whether that’s true for the world economy won’t be clear until Greek elections on June 17, when voters will make their feelings about austerity known.