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EDITORIAL: Overdose

Europe’s austerity doctrine is making things worse.

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The medicine is killing the patient.

Extreme retrenchment and cost-cutting has not just caused social unrest in Southern Europe.

Yesterday saw a dramatic conclusion by the International Monetary Fund (IMF) that the effect of the austerity doctrine has run contrary to its purpose. The debt burden has not decreased and growth has not been boosted – precisely because EU governments have applied the public consumption brakes too harshly.

The Washington D.C.-based IMF, which is normally unsentimental and far from leftist, has calculated that the effects of cutbacks in Europe have been more destructive and growth inhibiting than politicians have dared tell their electorates.

In the short term, the so-called necessary reforms have actually done more harm than good. The EU countries have simply impoverished themselves by applying the brakes to overall consumption.

The combined social and economic collapse is nowhere clearer than in Greece, where Germany’s Chancellor Angela Merkel paid a state visit yesterday to the sound of booing and violent street protests.

The uproar is fuelled out of real frustration that the austerity requirements placed on Greece have reached the pain threshold. The man in the street in Greece is actually feeling what the IMF has now calculated: the economy cannot be kick-started simply by lowering wages.

The demonization of Angela Merkel and the disgraceful Nazi comparisons we have seen are preposterous. There is no doubt that the other European countries have a right to demand a concrete plan for Greek debt relief as a prerequisite for continued loans and credits for Greece.

After years of over-consumption and lack of tax revenues, Greece cannot avoid substantial reforms.

But the situation is now desperate. Bottom line: Greece is in meltdown – a situation that other EU countries – including Germany - have previously experienced and have received massive aid towards economic reconstruction.

The European project is about cross-border solidarity and the will to bring about stability and growth through common solutions.

No-one, including the rich countries of the north, is served if Germany and other like-minded countries insist that all of the reforms have to be introduced immediately, and quicker than even the IMF sees as sensible.

The medicine so far is in the process of killing Greece. The dose must be reduced. The demands must be toned down in order that Europe itself is not dragged into a critical condition.

ltm

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