'Austerity isn't working' eminent economists tell EU leaders

21st May 2012

European leaders pushing austerity as the solution to the current economic crisis are guilty of "bad economics, bad arithmetic and ignoring the lessons of history," according to a pamphlet by eleven eminent economists and social scientists published today by Oxfam.

Be Outraged - whose authors include Sir Richard Jolly, a former UN assistant secretary general, Stephany Griffith-Jones, Financial Markets Director, Initiative for Policy Dialogue of Columbia University and Frances Stewart of Oxford University - calls for a new economic approach including government action to promote growth and transform the financial sector from a "bad master to good servant". It also calls for a tax on financial transactions (also known as a Tobin or Robin Hood tax) to control speculation and act as a valuable source of revenue.

The pamphlet is published two days before Europe's leaders meet to discuss ways to boost growth across the continent amid fresh economic and political chaos in Greece and just weeks after Francois Hollande was elected President of France promising more pro-growth policies.

The economists warn that Europe needs urgently to escape from "a trap where the screws of austerity are tightened while reductions of debt proceed ever more slowly or even increase.

"Austerity and cutbacks are reducing growth and worsening poverty. In our professional opinions there are alternatives - for Britain, Europe and all countries that currently imagine that government cutbacks are the only way out of debt," they add.

Be Outraged warns that the austerity approach to reducing deficits and debt is counterproductive; it is leading to a downward spiral of incomes and government revenues making it more difficult to reduce the debt and undermining growth prospects.

warns that the austerity approach to reducing deficits and debt is counterproductive; it is leading to a downward spiral of incomes and government revenues making it more difficult to reduce the debt and undermining growth prospects.

The pamphlet identifies a number of related problems which need urgent action including:

- Unemployment: More than 10 per cent of European adults are unemployed, up by 50 per cent since 2008. More than one in five- 22% - youth under 25 are unemployed and in some countries over 40%

- Women: Cuts in public spending usually leave women to pick up the pieces and children to bear the brunt. It is counter-productive to sacrifice their rights and support in the name of credibility in financial markets

- Inequality: Top incomes have soared in the UK and US especially: the globe's richest 1 per cent (61 million people) earn the same as the poorest 56 per cent (3.5 billion);

- Lack of international support for global recovery: Action - including the fiscal stimulus - agreed at the 2009 G20 in London restored recovery for a year, helping global growth reach 4 per cent in 2010. A new stimulus and renewed coordination is badly needed now;

- Finance: the sector should serve the needs of the real economy and help manage and mitigate risk. For the past two decades it has done neither.

Policies to deal with each of these problems are illustrated by examples of successful action, mostly taken from emerging and developing countries. The pamphlet says Europe's leaders should now learn from developing and emerging economies, in particular the responses by Korea, Indonesia, Thailand and China to the 1997-2000 East Asian crisis and the recent successes of countries such as Brazil, Argentina and Thailand in reducing inequality.

to deal with each of these problems are illustrated by examples of successful action, mostly taken from emerging and developing countries. The pamphlet says Europe's leaders should now learn from developing and emerging economies, in particular the responses by Korea, Indonesia, Thailand and China to the 1997-2000 East Asian crisis and the recent successes of countries such as Brazil, Argentina and Thailand in reducing inequality.

Be Outraged was inspired by 'Indignez-vous', a multi-million best-seller written by Stephane Hessel, former member of the French resistance and endorsed by Archbishop Desmond Tutu. The authors, all of whom have spent a lifetime working in economic development in different parts of the world, give a wake-up call to political leaders who remain in thrall to a neo-liberal economic and financial orthodoxy which led to the current crisis and is ensuring its costs are being borne by those least able to cope with them.

was inspired by 'Indignez-vous', a multi-million best-seller written by Stephane Hessel, former member of the French resistance and endorsed by Archbishop Desmond Tutu. The authors, all of whom have spent a lifetime working in economic development in different parts of the world, give a wake-up call to political leaders who remain in thrall to a neo-liberal economic and financial orthodoxy which led to the current crisis and is ensuring its costs are being borne by those least able to cope with them.

Contact: Jon Slater +44 (0)1865 472249/ +44 (0)7876 476403/ jslater@oxfam.org.uk

Notes to editors:

Oxfam GB has supported the production and dissemination of this booklet as a contribution to the debate around the impact of, and solutions to, the global economic crisis. The views and recommendations expressed are not necessarily those of Oxfam.

Full list of authors:

Sir Richard Jolly - Research Associate, Institute of Development Studies at University of Sussex

Giovanni Andrea Cornia, Professor, Department of Economics, University of Florence

Diane Elson, Emeritus Professor, Department of Sociology, University of Essex

Carlos Fortin, Research Associate, Institute of Development Studies at University of Sussex

Stephany Griffith-Jones, Professor, Financial Markets Director, Initiative for Policy Dialogue, University of Colombia

Gerry Helleiner, Professor Emeritus, Department of Economics, University of Toronto

Rolph van der Hoeven, Professor, Employment and Development Economics, ISS, Erasmus University

Raphie Kaplinsky, Professor of International Development, Open University

Richard Morgan, UNICEF (in a personal capacity)

Isabel Ortiz, UNICEF (in a personal capacity)

Ruth Pearson, Emeritus Professor of International Development, University of Leeds

Frances Stewart, Professor, Department of International Development, University of Oxford