Austerity Rising

The broad European response to the economic downturn of the last few years has been various programmes of economic austerity: reductions of national expenditure through intense budget cuts. History shows that this is a risky tactic. Policies like this played an important role in aiding the Nazis’ rise to power at the end of the Weimar Republic.

A large number of the measures have targeted the poorest and most vulnerable, leaving financial elites untouched. The lopsidedness of is not lost on anyone, especially since it is the misadventures of those elites that brought about the 2008 financial crash in the first place. Many ideologically-driven Nazis had a disdain for elites such as these in the aftermath of the 1929 stock market crash, and their historical context must be understood.

The Weimar Republic, which was established in the November Revolution that shortly followed the end of World War I, had already been through a lot of ups and downs, including the hyperinflation crisis of 1921-24. This created a climate of instability where radical political ideas had gained traction, and the young democracy was being attacked from all sides.

This was especially true given that Weimar was based on a deeply anti-republican infrastructure of bureaucrats and officials that craved a democratic rollback. It was, to borrow an oft-quoted phrase, “a republic without republicans.” The highly unstable nature of continental European economy through the “Cartaginian peace” terms of the Treaty of Versailles articulated that reality in a terrifying manner.

For a time, this seemed avoidable with a wider economic recovery in the late 1920s. However, the start of the Great Depression plunged the world, and particularly a still vulnerable Germany, into further difficulties.

For a population that had already suffered years of poverty and instability, the chosen course of austerity cuts, which directly impacted their quality of life, provided the final indignity. Not only did the new policies fail to help the economy. They also contributed greatly to the sentiment that representative institutions were no longer capable of meeting public needs. It wasn’t a great leap from this, to the widespread idea that all political parties now belonged to an oppressor class.

It was within this atmosphere of weariness with respect to democratic institutions that Hitler seized his moment, and the rest, as they say, is history of the most brutal and destructive kind.

Obviously, there are differences between then and now. Curiously enough, contemporary Germany has not reacted to the current crisis with an anti-austerity fervor. Rather, there is instead a severe aversion towards the risk of inflation, even though the economy was well on its way to recover from hyperinflation when the Great Depression hit. Some analysts attribute this to the revisionist history propagated by the ideological descendents of Friedrich Hayek’s Austrian School of Economics, which was the original champion of austerity in the 1920s and 30s.

Whatever the historical reasons, it is abundantly clear that today’s Germany, as a dominant partner in the European Union, continues to aggressively force austerity policies in exchange for economic bail-outs throughout Europe. This is despite repeated warnings from many quarters that these policies are not facilitating the recoveries of the affected economies.

Austerity has forced a dramatic reduction in funding for social services and welfare, removing the safety net for the most vulnerable members of society. For example, in Greece, where austerity has hit ordinary citizens harder than anywhere else, there have been disastrous social consequences, including massive problems in the Greek health system.

A similar story can be seen throughout the continent, where massive unemployment and increasing poverty have led to social upheaval, with all the attendant popular anger and political polarization. There is a reason that far-right parties appear to be on the rise everywhere, whether in France with the National Front, or Hungary with Jobbik.

It is worth noting, though, that Germany itself has done comparatively better given the prevailing situation. By taking advantage of a depreciated Euro to bolster its export economy, in addition to recognizing various other benefits in the Eurozone, Germany has emerged as a booming beneficiary of modern Europe. This may have been more calculated than we realize. After all, a strong argument can be made that Germany’s actions post-unification played a major role in creating the current crisis in the first place.

Little wonder then that in many eastern European countries, one of the main arguments of the rising far right is the need to protect their people from Germany and the EU’s ‘financial imperialism’. Much in the same way as the Nazis once did in Germany, these extremist parties promote many policies that are superficially reasonable, and of great benefit to society, but with the caveat that the benefit is reserved only for that cross-section of society falling within the politically obedient and racially “pure.”

The success enjoyed by Svoboda in Ukraine, for instance, is a reminder that populism doesn’t need to be progressive, especially when it is mobilizing populations that are bitterly suffering from the mistakes of financial elites.

It is tempting to analytically segregate the problem in eastern Europe, a line of inquiry that is especially popular among leftists who are somewhat nostalgic for the Soviet Union, but there has been a groundswell of far-right activity in western Europe as well. The National Front’s ability to blossom while Francois Hollande’s ruling Socialist Party dithers is just one example. As we approach elections for the European Parliament, factions like the Party for Freedom in the Netherlands are set to make impressive gains. The problem is also manifest outside of party politics. Swiss voters recently approved strict new limits on immigration, in contravention of existing agreements with the EU on freedom of movement.

Meanwhile, in Britain, while Prime Minister David Cameron’s Tories continues a Thatcherist line with austerity, the populist United Kingdom Independence Party (UKIP) grows at an alarming rate, dragging the immigration debate to new levels of intensity. The government has gone so far to keep pace with this extremist alternative that it has even sent vans around telling immigrants to “go home.”

In such a climate, it comes as no surprise to hear allegations that Cameron’s government suppressed a report highlighting the £25 billion net gain provided to the economy by immigration between 2001 and 2011. In combination with a particularly harsh attack on the welfare system and local services, this has led many to speak of British austerity as a “war on the poor.”

What of the alternatives? One interesting example is provided by the admittedly small Iceland, where popular pressure led to an entirely different approach. Responsibility was placed squarely with the bankers who caused the crisis, while the welfare system and Icelanders themselves were protected as much as possible. There are remaining issues, such as high personal debt caused by massive devaluation of the Icelandic kroner at the time of the crash, but it has still managed to stumble into recovery without targeting the impoverished.

Even apart from Iceland, a quick search of alternatives to austerity displays the wide range of approaches that are available. The science of economics has evolved significantly in the past century. This article is not meant to delve into all of them. Rather, it seeks to shed light on the dangers of continuing to go along with an already failed approach.

The most important discussion going forward may be how we can push existing institutions to prevent irresponsible actions that can wreak havoc on society. Iceland’s example shows that popular pressure can actually make a difference. It would obviously have to be on a different scale in other places. Only time will tell, though, how today’s austerity plays out in the rest of Europe.

Photographs courtesy of Graham Holiday, Epic Fireworks, and Francis Marani. Published under a Creative Commons License.