BY IMANE KURDI Is austerity dead? Fiscal austerity has been bandied about endlessly as the only remedy for Europe's debt crisis, a foul but necessary medicine, one that is hard to take but will eventually put the continent back on its feet. Austerity packages are now de rigueur in Europe. For years now, the mood has been one of belt-tightening, of spending cuts and tax increases. The good times are over the good citizens of Greece, the UK, Spain, Italy, Portugal and Ireland - to name but a few - have been told; now is the time of austerity. What is austerity? As a word it is bleak and gloomy, it conjures up a dark room with little furniture, where only the most necessary items are laid out, anything superfluous or luxurious is removed; it is a world pared down to its bare essentials. Fiscal austerity is very much in that vein. Governments facing a growing debt burden cut deficits by reducing spending, cutting down on public services and social benefits, reducing salaries, cutting jobs in the public sector, increasing the retirement age, increasing duties and taxes, or a mix of all of the above. Nonessential spending is cut ruthlessly in order to balance the books. Austerity is painful, ugly and tough. It's little wonder that people protest against it; who would want to live under its yolk? But is it necessary? Is it the only answer to cutting down fiscal deficits? France's new president says not. During his victory speech last Sunday François Hollande heralded the good news: Austerity is no longer inevitable, it need not be Europe's fate. The opposite of austerity is growth. Where Hollande differs from Angela Merkel, the austerity queen of Europe, is not in terms of accepting that books need to be balanced, but in how that balance can be achieved. Put in its simplest terms, if you have debts to pay, you have two choices: you can spend less or earn more. Hollande is part of the camp that says it is possible to stimulate growth through a package of economic measures. Merkel's reply is that you cannot get into more debt in order to stimulate growth, restructuring is the answer. Hollande has said that he intends to renegotiate the EU fiscal pact, a treaty designed to force member states to abide by strict budgetary rules. Angela Merkel has replied that it is not up for renegotiation. So will the Franco-German political axis break down? The beauty of diplomacy is that it is based on negotiation and mutual interest. Merkel and Hollande are due to meet on the 16th of May and you can bet they'll hammer out a compromise. The treaty won't be renegotiated, austerity will not be consigned to history, but a growth stimulus chapter might well be added to the treaty. Hollande has four key propositions for this purpose: First, he wants to introduce Euro-bonds to finance industrial infrastructure projects. Second is the introduction of a financial transaction tax. Third, he suggests unused EU structural funds be re-allocated for stimulating growth. And finally, he would like the European Investment Bank to make money available to finance employment creation. Essentially what Hollande and economists who share his worldview think is that if you constrict budgets too much, you end up stunting growth. What needs to be done instead is to pour money into the economy in ways that can stimulate growth and employment. There is also a refusal to be at the mercy of banks and financial institutions. Hollande has also pledged to create jobs - for instance 60,000 new teaching posts are to be created - and to increase the tax burden on the rich, with a new 75 percent tax on incomes over a million Euros a year. You could call it shifting the austerity burden to the richer end of the income scale. Whether it all works remains to be seen but what is undeniable is that these ideas are appealing to the voting public. On the same day that France elected a new president, Greece voted in a new parliament with voters overwhelmingly punishing pro-austerity parties. Britain too saw its ruling coalition punished by voters in local elections, as has Italy. Austerity may please accountants and bankers, but those who have to live with the consequences, who see their living standards plummet, who struggle to make ends meet, may choose to disagree with its necessity. Hollande is right, austerity cannot be sold as Europe's inevitable destiny. The tide is turning against it. — Imane Kurdi is a Saudi writer on European affairs. She can be reached at [email protected] __
