Inside Story

Has austerity worked?

As Spain shakes free from its bailout, we ask if Europe is on the road to economic recovery.

Last updated: 24 Jan 2014 09:40
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Spain has become the second eurozone country to shake free from a multi-billion dollar bailout.

Europe's sixth-largest economy has also been breaking records for attracting investors, with more than $50bn worth of orders for a new 10-year government bond.

But with unemployment on the rise, in a country saddled with debt, is it too early to talk of recovery?

When asked whether it would be premature to declare victory, Mario Draghi, the head of the European Central Bank, told a news conference: "I would be very cautious about saying that, very cautious indeed."

Austerity helped to stop the debt from spiralling out of control, and I think that it was an important result in the short term .... However ... with ... unemployment remaining so high [in Spain] and the same in Greece, it's hard to see how austerity is going to promote economic growth in these economies.

Diogo Lemos, a visiting scholar at Humboldt University 

Figures released on Thursday showed Spain's already high unemployment rate had edged up still further in the fourth quarter of 2013, to 26 percent of the workforce, and the growth forecast for 2014 is at below one percent.

Spain has emerged from recession after getting to grips with a crippling debt crisis. The country's secretary of state for the economy, Fernando Jiminez Latorre, told Al Jazeera: "There was a very committed fiscal policy into a sustainable basis and also a strong structural reforms programme. The change in the trend of those imbalances has restored confidence into the economy."

But feelings are still running high over Spain's financial crisis. There have been 46 nationwide protests of late over something seemingly insignificant - local government plans to convert a street in the northern city of Burgos into a tree-lined boulevard. The cost is reported at $11m, in a city with more than $680m in debt. It has become a symbol of resistance among protesters who still blame state corruption for causing Spain's economic crisis.

In total, five eurozone countries needed financial support from international lenders.

Spain negotiated a $125bn deal to bail out its banks but, in the end, only needed around $50bn.

Ireland was given $113bn in 2010 as part of its austerity package, and in December became the first eurozone country to leave its rescue programme.

Portugal received $116bn in 2011. It is hoping to end its bailout programme later this year. Cyprus avoided a collapse of its banking sector with a $13.5bn bailout. A first instalment was paid in May.

But it was a different story in Greece. It has received two bailouts totalling more than $300bn - and may yet need a third.

So have the strict austerity measures imposed as a condition of eurozone bailouts been successful? Are the countries that needed rescuing now on the road to recovery? Or are the fruits of this arduous labour still some way off?

Inside Story, with presenter Shiulie Ghosh, discusses with guests: Jon Truby, a professor at Qatar University and a specialist in business law; George Kratsas, an expert on sovereign funds and EU regulations; and Diogo Lemos, a visiting scholar at Humboldt University.

"It is going to be very appealing for the money markets, and it's also going to try to convince the electorate that the Spanish government knows what it's doing - that austerity has worked. Now this is something that doesn't affect just Spain, but affects all of Europe. So governments across Europe are basing their policies and basing their campaigns on the premise that austerity has worked, that it has been effective … [and] it seems to have. But, in fact, what we have to remember … is that … the economy is a beating heart - it expands and it contracts naturally ... this causes the growth, and governments are trying to take the credit now."

Jon Truby, a professor at Qatar University


Al Jazeera
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