x Abu Dhabi, UAEFriday 19 January 2018

Europeans have a bitter pill to swallow

Austerity. The word has caused Molotov cocktails to fly in the streets of Athens, union members to march in Britain, and protesters to take on riot police in Brussels at the EU summit that ended on Friday.

There is little surprise that Europeans remain furious with their governments nearly a year into the sovereign debt crisis. Millions have suffered salary and benefit cuts, unemployment, and an overall reduction in quality of life. And that's not all. "Bankers and CEOs are continuing to receive huge and scandalous bonuses," the European Trade Union Confederation trumpeted in Brussels. That basic unfairness is a common theme to the protests.

EU leaders have little hope to offer their citizens as they scramble to restore market confidence and prevent further fallouts. Last week Portugal's credit ratings tumbled after its prime minister, Jose Socrates, resigned when parliament rejected further austerity measures.

If Portugal seeks help from the European Financial Stability Facility, the euro zone's bail-out mechanism, many fear the domino effect would next hit Spain - which could bankrupt the €500 billion (Dh2.6 trillion) fund.

And the "Euro Plus Pact" that leaders agreed on last week may prove unhelpful simply because it is fundamentally European. Originally conceived of as mandatory austerity measures implemented by national governments, it has been watered down to a pledge that asks the European Commission to oversee voluntary measures.

One way or another, the European public is paying for the sins of its government and banks, and leaders must be mindful of this. There will be a political price to pay before protesters leave the streets or disgruntled employees grow used to diminished paycheques. Europe's workforce continues to age, and the pressures of the welfare states will weigh heavily against efforts to keep the economic zone together.

If the euro is to stand, there are almost certainly more bailouts to come. And to qualify for bailouts, countries will have to force austerity measures on their citizens anyway.

The best chance in the long term is growth and integration, so struggling countries can benefit from their lower labour costs. For now, the short-term solution seems more of that bitter medicine few are willing to stomach, but nevertheless must take.