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Europe has championed austerity economics for several years now in reaction to the crisis in which it is engulfed, but growth has still not recovered and forecasts remain gloomy.
The problem is that cutting government spending in a downturn does not boost growth - rather, it shrinks the economy: the opposite of what is needed. Even the IMF, a traditional proponent of austerity, knows that fiscal consolidation has contractionary effects on the economy, and Europe's recent experience has confirmed this many times over.
As Cambridge University economist Ha-Joon Chang writes, the real goal behind austerity is to roll back the welfare state by cutting government expenditures on services on which the poor rely to a greater extent, such as welfare and poverty alleviation programs. One particularly obvious example of this strategy is the policy of ongoing reductions in public health care spending and services in many European countries.
For example, a major new study published in the British medical journal The Lancet examines the impacts of austerity on health care in Europe. The must-read report focuses on Greece, Spain and Portugal, which have adopted rigid fiscal austerity policies, and its findings are worrying. Expenditure cuts in those countries have led to increased "strain on their health-care systems" while "suicides and outbreaks of infectious diseases are becoming more common in these countries, and budget cuts have restricted access to health care."
Such attacks on health care systems have been imposed by the so-called troika (the IMF, European Commission, and European Central Bank) as conditions for countries in financial distress receiving bailouts. For example, in Greece, "the troika has demanded that public spending on health should not exceed 6 percent of GDP." As such, 370 specialist units have been eliminated or merged, 2,000 public hospital beds removed and a freeze on hiring new physicians implemented. Meanwhile, there have been reports of 40 percent cuts to hospital budgets and shortages of staff and medical supplies, amid "widespread drug shortages" in pharmacies, The Lancet reports.
Some of the effects are already clear. Cases of mental disorders have increased in Greece and Spain, and the number of suicides in the EU has grown since 2007, reversing a sustained decrease in many European countries in the years before 2007. The report notes that in England, the surge in suicides in 2008 to 2010 was "significantly associated with increased unemployment and resulted in an estimated 1,000 excess deaths."
Moreover, Greece has faced an HIV outbreak among drug addicts using needles. Before 2010, there were only 15 new infections per year, at most, but in 2011, 256 new infections were reported, along with 314 in the first eight months of 2012. The reasons behind this drastic increase are low provision of preventive services and the disruption, since 2008, of needle exchange programs, which are effective in reducing HIV and other infections.
Unfortunately, such outcomes can only be assumed to be the tip of the iceberg, as many of the consequences of spending cuts take time to affect people's health negatively and even more time to be reported in national health statistics.
Interestingly, the report also emphasizes the case of Iceland, which does not seem to have suffered any marked deterioration in its health indicators (one problem has been a slight increase in the frequency of cardiac emergencies at the onset of the crisis, but this lasted only a week). The Lancet highlights the difference between Iceland and countries like Greece, Ireland, Spain and Portugal: Even though Iceland has been hit solidly by the financial crisis, it has offered a more effective resistance to austerity.
How can those positive outcomes be explained? The report lists four reasons. First, Iceland rejected the advice of the IMF in dealing with the crisis and instead "invested in social protection." Second, diet improved because McDonald's left the country due to rises in import prices of the onions and tomatoes it uses in its burgers. Third, restrictive policies on alcohol were maintained, contrary to IMF advice. Fourth, the Icelandic people remained united during the crisis. The implication is that Eurozone countries should thus pay close attention to the Icelandic alternative to fiscal consolidation if they are to emerge from their economic predicaments.
The Lancet report makes one last important point by noting the inaction of European governments and health bodies in relation to the deteriorating health outcomes in territories under their jurisdictions. For instance, the directorate-general for health and consumer protection of the European Commission has the legal obligation to evaluate health effects of EU policies but it has not assessed those of the troika's austerity policies. Rather, it has focused on advising national health ministries on how to cut their budgets.
As such, Martin McKee, one of the researchers who wrote the Lancet report, said that the EU is in "denial" over the health effects of the troika's austerity policies, an attitude he says is reminiscent of the tobacco industry's "obfuscation" over curbing smoking.
It seems that change will have to come from civil society organizations and progressive groups and individuals, not from those in power or the institutions for which they work.