The Euro Economy

Anti-austerity protests (c) cosmo_71 via Flickr

As the second round of EU-Ecuador trade negotiations wrapped up on a positive note in March, Ecuador expects to have the bilateral trade agreement finally signed by mid-2014. But can the EU take more from Ecuador than just bananas and shrimp? Witnessing the damaging effects of European austerity on the peripheral economies of countries such as Spain, Italy and Greece, perhaps it’s time the EU sought inspiration elsewhere for its woes.

While harsh fiscal tightening appears to have worked for Germany, it has produced extremely undesirable and devastating effects on other member states. In Spain, the official unemployment figure stands at 26%, while youth unemployment is a whopping 57.7%, leading to continued frustration and protestation toward the government’s fiscal tightening. Spanish citizens have argued that their government should be less concerned about paying back the EU and be more interested in placing a greater emphasis on helping their fellow citizens and transforming Spain into a better place to live. Instead, EU orchestrated welfare cuts have awarded them with huge rises in unemployment, dramatic losses of purchasing power and rapid increases in poverty levels.

And it’s not just Spain we are talking about here. Protests in Brussels on April 4th , illustrated the endemic bitterness toward the EU and its austerity measures as they are eating away at the minds of many Europeans. Citizens travelling from all over Europe, including Portugal, Bulgaria and Cyprus, came to send a heavy handed message to European leaders: We are done with austerity, “[we] want a concerted effort to tackle unemployment, poverty and inequality”, the very evils austerity has helped exacerbate. While previous calls for change have fallen for the most part on deaf ears, EU leaders should be increasingly concerned about the recent waves of protests. With European Parliament elections looming on the horizon, European officials will likely pay the price for their inaction. It’s no small wonder that a sharp rise in votes for the European populist, anti EU, anti-establishment and anti-immigration extreme right is expected.

 

Europe is hanging on while Ecuador is ploughing ahead

Is austerity the only way? President Correa, with his alternative economic agenda, is by far the most popular elected leader in the whole of the Americas, and has maintained a well-above 50% approval rating at home since his election in 2007. Bearing in mind that Ecuadorian habit of removing their ineffective Presidents from their high horse every couple of years, what miracle has President Correa produced to ensure his three successful terms? The answer, of course, lies in the economy.

Since his arrival into the post of President, Correa has restored belief in the policies of socialism over the Western capitalist ideal, and rather than leaving matters to the invisible hand, he has taken them into his own. And with astounding results! In a move that would likely have been rejected by the US and the European Central Bank, Correa has tactfully used Ecuadorian oil income to fund projects targeted at the reduction of income inequality, unemployment and poverty, by investing in three key areas: education, health and infrastructure. The results speak for themselves: from 2007 to 2012, poverty has dropped from 35% to 27% and Ecuador stands as one of the fastest growing economies in Latin America.

Correa’s savvy policies helped Ecuador to exit the recession within the first quarter with positive growth, rather unscathed in comparison to the unfortunate stories of the US and the EU. Unlike the European Central Bank, in the face of rising inflation, Ecuador continued to lower its interest rates, understanding that raising interest rates would not eliminate inflation and would only spur massive unemployment. This is the exact situation we witnessed in Europe as the ECB prioritised its battle with inflation over growth and employment in the economy, to the disadvantage of countries such as Spain and Greece.

In the right set of circumstances, Ecuador’s policies stand as an example of restored economic growth outside the constricting schema of neoliberalism. Moreover, post-crisis unemployment levels are actually lower than pre-crisis ones.. The US, keeping true to its aggressive rhetoric of denouncing states that wander away from its mandate, continues to denounce Correa and his government as a “leftist authoritarian regime”. Worryingly still, Washington has made attempts to influence Ecuadorian policy through the OAS and its human rights commission, the IACHR – an institution widely viewed by Ecuador, among many other members, as an instrument wielded to further US interests in the region.

In reality, both the US and the EU should look towards the “Ecuadorian economic miracle” as a potential alternative to ordoliberalist policies of austerity, market liberalisations and privatisations, policies that have resulted in poverty, huge wealth disparities, unemployment and reduced demand.

Incoming European leaders would be wise to learn from the mistakes of the previous leadership and incorporate alternative policies aimed at bettering the lives of its citizens. Otherwise, they could soon learn, as President Correa’s predecessors have, that the seeds of unhappiness sprout rebellion.

 

 

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