On Monday 11 December, a coalition of social democrats, liberals, and conservatives approved Austerity 2.0 in the Parliament’s Economics Committee.

The following morning, in Brussels, trade unionists and workers came in their thousands from all over Europe to protest the cutting of wages, public services, and pensions.

The march, called by the European Trade Union Confederation (ETUC), came as MEPs and ministers negotiated a draft proposal for new economic governance rules, which requires all member states with a deficit above 3% of GDP (the total value of a country’s economic output) to reduce it by a minimum of 0.5% per year.

Concretely, this means 14 member states will have to cut €45bn from their budgets in the next year alone, according to data from ETUC. Even more concretely, it means a country like Italy, hit incredibly hard by the COVID-19 pandemic, will have to forgo funding 300,000 nurses in order to pay down its deficit.

Coming after two years of a brutal cost-of-living crisis, exacerbated by both the pandemic and the war in Ukraine, the new rules on economic governance are a result of collaboration between the social democrats and the Right. This alliance is responding to the crisis the only way they know how: by loading the burden of the struggle onto the working class of Europe. The public service sector in Europe is chronically underfunded. During the economic and financial crisis, banks were rescued with billions of public money, while hospitals were starved of resources. Hundreds of thousands of people died because they couldn’t receive adequate treatment. 15 years on, climate protection remains a work in progress and privatisation and cuts come first as right-wing agitators continue to bind the EU to a misguided path of market radicalism and competition.

In 2022, over 20% of people in the EU were at risk of poverty or social exclusion, with inflation skyrocketing thanks to the eye-watering profits of food and energy companies. ‘Excess profit taxes’ have barely had an impact, with European companies paying out over €170bn in dividends in the first half of 2023. Instead, we are in the midst of a profit-price spiral.
A return to austerity in this context would not only increase the pressure on low-income workers and strain public services, but also hurt member states’ ability to invest in climate and social protections – two of the biggest priority issues for workers.

At a time when countries need large-scale increases in public investment to provide decent, sustainable jobs, and to meet their climate goals under the Paris agreement, the new rules will force countries to either raise taxes or slash spending to meet arbitrary deficit targets – the latter of which will almost certainly lead to a recession.
For the far-right, an austerity-driven recession is a gift – they can point, not incorrectly, to imposed austerity from the European Commission. The climate of mistrust in EU institutions fostered by a disastrous response to the 2008 crisis gives them a smokescreen to push their culture war agendas.

The discredited economic theory of ‘cutting to grow’ has proven itself a failure time and again. New economic governance rules are an opportunity for a new, fairer economic model that puts workers first, not superprofits. We need an economy that works for us – not the other way around.