Le Financial Post publie ce matin mon article d'opinion sur le débat sur l'austérité qui fait rage en Europe. Il s'agit d'une adaptation d'une Note économique produite pour le compte de l'Institut économique Molinari, à Paris. M.M.
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by Martin Masse
In all the discussions in Europe about the consequences of so-called "austerity," the only numbers presented as evidence that austerity measures have been implemented consist of statistics indicating that budget deficits have gone down during the past three years.
Indeed, they have. The average level of deficit as a percentage of GDP in EU countries in 2012 is much lower (4%) than it was at the height of the crisis in 2009 (6.9%).
For the Keynesian critics of austerity, this explains why most countries on the continent are still in recession, or close to it, and why unemployment is reaching record highs. Austerity is killing demand, killing employment, killing growth. The only way to restart the economy is to forget about the deficit and the debt and to go ahead with more stimulus spending.
There is however a fundamental confusion over the meaning of the word "austerity" which impedes a better understanding of the situation and precludes a more relevant debate over the causes of the crisis.
It should be obvious that there is no direct relationship between reducing the size of the deficit and reducing the size of government. A budget deficit can be reduced either by cutting spending or by increasing revenue. It can also be reduced if spending is cut a lot but taxes are cut only a little. It can be reduced even as spending increases if revenues increase even faster.
In practice, "austerity" can thus cover all kinds of situations with differing economic impacts. The term can apply just as well to growth as to reduction in the size of government.
It seems to be universally taken for granted that austerity measures have meant drastic spending cuts, coupled with some tax increases, the net effect being a downsizing of government. But is this really the case?
Governments keep growing
The latest Eurostat data indicate that there has only been a slight decrease of 1.7% percentage points in government spending as a proportion of GDP in the 27-member European Union since 2009. That proportion is, however, still four percentage points higher in 2012 than before the crisis started, 49.4% compared to 45.6 % in 2007.
In nominal terms, government spending has never stopped rising in the Union as a whole since the beginning of the financial crisis, except in 2011 when it remained constant (see Figure). Spending grew by 6.3% in the last three years, in other words during the period when "austerity" policies were supposed to have been applied.
Thus, whenever finance ministers announced budget cuts, they were actually referring not to absolute reductions in total spending but simply to spending increases that were lower than what was previously planned or to cuts that were offset by more spending elsewhere.