Austerity policy threatens eurozone future, says EC jobs chief

The EU’s austerity policy has failed, pushing the numbers of poor to record levels, and now threatens the future of the eurozone, according to outgoing Employment Commissioner László Andor.

An economist, Mr Andor is the first Commissioner to speak so clearly againstthe continuing German inspired push for austerity.

He warned that reducing poverty “must permeate the meeting rooms of EU finance ministers... to avoid the EU becoming a poverty-generating, low-skills, low productivity, and low-wage economy”.

Poverty should not be considered to be the acceptable collateral damage from fiscal adjustment he said and warned against indiscriminately adopting all policies seen as creating growth.

A quarter of Europe’s people, 124m, are at risk of poverty — the highest figure since the foundation of the EU. It had increased by 8m in the past four years, Mr Andor told a conference on ‘lessons from the crisis’.

“The crisis and the internal devaluation applied in many member states without prior social impact assessments provoked a deep and long economic contraction that led to the closing of factories, the reduction of wages and welfare programmes as a way of adjusting to the falling national income,” he said.

However, jobs and growth were not enough to reduce poverty — more than 116m were at risk of poverty in 2008 when growth was strong. And having a job did not prevent poverty either.

The number of working poor has been growing, as wages have stagnated or fallen in many parts of Europe, despite increased profits. When wages are not linked to an increase in productivity, inequality grows, Mr Andor said.

The growing differences between the better off and less well off countries threatens the economic performance of the eurozone, “because no union can function if its members drift apart”.

He also said that while EU member states have said they will cut the numbers of poor by 15% within six years, the current policies will not achieve this.

However, to tackle the growing poverty and inequality levels, “a seismic shift is required in the ambition levels of member states”, he said warning against moves to reduce targets.

He also took issue with the idea that overblown welfare systems added to the crisis — “it originated in deregulated financial markets and bankers running amok” — and without social security nearly half of Europeans would be living in poverty.