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  1. Wealth
June 8, 2012

Don't Punish the Weakest with Austerity

By Spear's

We should all be grateful for Europe’s street protestors and its voter-conscious politicians

There’s an opinion piece in today’s FT that argues that Europe could learn from Asia’s handling of the 1990s east Asian debt crisis — an interesting idea, I thought. Then I read on.

The wonderful thing about Asian governments’ handling of the crisis then, the authors argue, was that the people ‘did not believe in the magic of street demonstrations’, they simply ‘had to tolerate hardship’. They quote from Sun Tzu’s The Art of War that a great way to ensure that troops fight to the death is to set fire to the ships behind them.

No doubt this was a very effective strategy – if you’re a military general and the year is 500 BC. It is hardly the kind of ideology that we should hope for in 21st century leaders.

Of course it is one of those pesky features of a well-functioning democracy that it can be hard for politicians to make unpopular decisions. And, yes, it is a shame that our bumbling, indecisive eurozone leaders appear unable to respond firmly or effectively to the region’s woes, leading to periods of nail-biting uncertainty.

At the same time, we should all be grateful for Europe’s street protestors and its voter-conscious politicians. In the short term, painful austerity measures (combined with some growth-stimulating investments) can tackle sovereign debt crises, but if these means thousands of individuals suffer for want of healthcare, food and shelter, this provokes the question — who are we doing this for?

More decisive, painful measures now may help Europe recover faster, but sacrificing the well-being of the few for the benefit of the many is a morally dubious choice. Consider this thought experiment, of the genre beloved by ethics professors around the world: imagine you have ten people stranded on a desert island, with a limited amount of food. Is it better to kill two people, so the other eight never have to go hungry, or for all ten to spend the next few years feeling hungry?

Already in Greece, children are being abandoned by parents who can no longer afford to feed them, soup kitchens are booming, and unemployment for the under-30s stands at 60 per cent. Unless you are strictly utilitarian in your outlook, most people will agree that beyond a certain level, austerity is simply immoral.

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Then there’s the question of whether the eurozone should just hurry up and bow to the inevitable by developing a fiscal as well as a monetary union. Again, this makes economic good sense — but it would create a gaping democratic deficit. Europeans would be right to take to streets, and let’s hope they will before sacrificing their sovereign powers to an opaque, unresponsive EU bureaucracy.

Another point made by the authors is that Europe should remove red tape, to make it easier for the Chinese sovereign wealth fund, China Investment Corporation (of which one of the authors is a chairman of the supervisory board), to invest in European companies. China has excess liquidity, Europe needs cash, it’s a win-win situation, they say. And yet European leaders are perfectly wise to insist on doing their homework before flogging their national companies to a secretive, unaccountable sovereign wealth fund.

The crises in Greece, Spain and the Eurozone may require decisive action, but policymakers grasping desperately for a lifeline should be careful that in their haste to respond to the markets, they don’t sacrifice the privileges that were so hard won through Europe’s troubled history: democratic institutions, respect for human rights and a belief that the minority who are hardest hit by austerity should never be sacrificed for the benefit of a majority.

Read more by Sophie McBain

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