Locking in austerity

Spring 2016

John Grahl looks at the growing EU practice of imposing laws and regulations that restrict macro-economic policy, with the aim of enforcing austerity and ‘competitiveneness’ – which usually involves lowering wages and removing employment safeguards. This resort to law is a particularly German habit, and Germany’s current EU dominance is driving this approach. It is precisely their faith in the market that makes the German government and its allies believe that it will adapt to the numerical rules it lays down (about the ratio of GDP to debt, etc). But this is not part of a Hayek legacy, as is often argued, since Hayek was in favour of abstract rules of operation rather than legislation. The ordo-liberal tradition is more committed to rules, but traditionally this tradition is also distrustful of big business. This market fundamentalist embrace of rules-based austerity needs to be challenged, but it should not be seen as a reason for Britain to leave the European Union. On the contrary, if Britain were more engaged in Europe, its influence could act as a counter to this trend.

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