Europe Growing Weary of 'Austerity' as Higher Taxes and Government Spending Cuts Plunge the Continent Deeper into Recession

Anti-austerity protests: Spain, Germany, Portugal

Thousands of anti-austerity protesters march in Madrid, Frankfurt, Lisbon

June 2, 2013

AP - Anti-austerity protesters on Saturday took to the streets of dozens of European cities, including Madrid, Frankfurt and Lisbon, to express their anger at government cuts they say are making the financial crisis worse by stifling growth and increasing unemployment.

Thousands marched peacefully toward Madrid's central Neptuno fountain near Parliament, chanting "Government, resign."

Around 15,000 people gathered outside the International Monetary Fund's headquarters in Lisbon shouting "IMF, out of here."

Many protesters were carrying banners saying, "No more cuts" and "Screw the Troika," a reference to the European Commission, the European Central Bank and the International Monetary Fund, the three-member group that bailed out the governments of Greece, Ireland, Portugal and Cyprus.

The bailout loans were given on the understanding that governments enact stringent austerity measures to rein in their heavily indebted finances.

Spain came perilously close to needing a sovereign bailout last year and was forced to negotiate a 40 billion euro ($52 billion) loan for its stricken banking system when its borrowing costs soared.

The country has been in recession for most of the past four years and has a record 27.2 percent unemployment rate. The percentage is twice that high for Spaniards under 25 years old.

Spain has since seen almost daily protests by people angry over money-saving cuts and reforms in the education and health sectors while failing banks received billions.

Spain's central and regional governments claim the cuts are needed to help the country reduce its swollen deficit to within agreed upon European Union limits.

"It's obvious that the intention of those governing us is not to take a single step back," said Madrid fireman Eduardo Oliva, 43. "So, it's in our hands, in all European citizens' hands, to demand change. Otherwise life's going to become impossible for us."

Portugal pledged to cut its debt in return for a 78 billion euro ($101 billion) bailout two years ago, but tax hikes and pay cuts have contributed to a sharp economic downturn. The country is forecast to post a third straight year of recession in 2013 while unemployment has climbed to 17.7 percent and is forecast to keep on rising.

Also Saturday, German police and thousands of anti-capitalist protesters engaged in a standoff near the headquarters of the European Central Bank in Frankfurt.

Police in Germany's financial capital said about 7,000 protesters refused to move after officers encircled a group of about 200-300 people because they refused to remove face masks they were wearing.

Organizers of the "Blockupy" protest said up to 20,000 people had demonstrated against the ECB's role in pushing European countries to cut government spending as part of efforts to reduce public debt.

Frankfurt police spokesman Erich Mueller said officers had used pepper spray and batons to stop some protesters from breaking through police lines.

Other protests Saturday took place in European cities including Barcelona, Brussels, Bilbao and Valencia.

"Like so many people, I'm really upset at the behavior of our governments because they have totally caved in just to prop up the banks," said Jesus Alonso, 63, in Madrid.

Europe's Austerity Revolt Forces Easing on Cuts

June 2, 2013

CNBC - Faced with soaring unemployment, deepening recession, and a widening political backlash, European officials are easing up on two-year-old demands for painful budget cuts from its most debt-gorged members.

The scope of the economic pain was brought into sharper focus last week with the latest jobless data for the 17 euro-area member countries. Nearly 20 million Europeans-some 12.2 percent of the workforce-are without work.

In struggling southern periphery countries locked in a downward spiral of tax increases and spending cuts mandated by Brussels, the job outlook is especially grim. More than one in four Spaniards is out of a job; in Portugal 17.8 percent are unemployed. In February, the latest data available, the Greek unemployment rate had risen to 27 percent.

Younger workers are taking the brunt of the recession's impact. Roughly two-thirds of young Greeks, for example, are unable to find a job.

"These are appalling statistics," said Carl Weinberg, chief economist at High Frequency Economics.

More than two years after Europe's debt hangover reached crisis proportions, policy makers are making some progress rebuilding a battered banking system and bringing member states' bloated budgets closer into balance.

But Europe is growing weary of "austerity"-especially as higher taxes and government spending cuts plunge the continent deeper into recession, with sharp contractions in Greece and Spain. As economies shrink, they generate lower tax revenues, making spending gaps eve more painful to close.

Europe's central bankers have been providing extra funding to help banks weather the crisis, but they've pumped much less money into the system than the U.S. Federal Reserve. While the U.S. economy also faces headwinds from recently-imposed budget cuts known as the sequester, the impact has been softened by a torrent of money pumping by the Fed, which has injected more than $3 trillion into the U.S. banking system and economy since 2008.

This week, the European Union postponed some budget-balancing deadlines, giving six countries more time to bring government spending below the target of 3 percent of gross domestic product. Instead, France, Spain, Portugal, Netherlands, Slovenia and Poland were given instructions on how to overhaul labor market rules and make other reforms designed to spur growth.

It remains to be seen how popular or effective those measures will be.

In the meantime, hiring continues to be held back by a credit drought, as Europe's batered banks shun the small and medium sized businesses that make up about 80 percent of European companies, according to Steen Jakobsen, chief economist at Saxo Bank.

"There are 26 million small- and medium-sized businesses in Europe," he said. "Imagine if all of them hired just one person over the next three years. We could eradicate all of the youth unemployment. I think it's pretty easy, but the political inability to react is massive."

European officials softened their budget cutting mandates as the fear of a default by one or more countries has subsided. As that anxiety in the financial markets has eased, so have interest rates for debt issued by Europe's most troubled governments.

That will give Europe some breathing room as policy makers struggle to find longer-term solutions. But it may also make it tougher for them to impose the reforms needed to jump-start economic growth, according to Charlie Parker, investment editor at Citywire.

"The only thing you've got forcing these European countries to change is the European Commission," he said. "And frankly they're just not as scary as an angry bond market."

EC officials also face the widening political backlash from peripheral countries, including Italy, where thousands of protestors took the streets of Rome earlier this month to protest austerity measures

Italy is mired in its longest recession since quarterly records began in 1970, more than one in three young Italians are unemployed.

Germany, which accounts for roughly 30 percent of Europe's economy, has been the staunchest defender of mandated belt-tightening for its indebted neighbors. Many German voters have grown weary of watching their euros subsidize bailout packages for what many see as their less-disciplined, free-spending neighbors.
But the recession that has gripped the rest of Europe is now taking hold in Germany, a reality that may temper voters' resolve to export the country's zeal for strict fiscal discipline.

Though Germany still enjoys a robust job market-the latest figure show unemployment at 5.4 percent-the austerity that has swept much of Europe now clouds its own economic outlook.

"Hard times are coming to Germany," said Weinberg. "Employment is flat or down, real wages are not going up, credit is tight and five years of austerity are biting. Euroland's hard times are reflecting back on Germany."