What is Wrong with the EU?

Eurostat just released the 2012 figures for poverty and social exclusion in the EU. The numbers are terrifying. Let me quote the press release: “In 2012, 124.5 million people, or 24.8% of the population, in the EU were at risk of poverty or social exclusion,  compared with 24.3% in 2011 and 23.7% in 2008. This means that they were in at least one of the following three conditions: at-risk-of-poverty, severely materially deprived or living in households with very low work intensity”
One may be tempted to shrug. After all, 1% in four years, is not that much. Let me put actual people behind the numbers: The number of people at risk of poverty increased of 5.5 millions between 2008 and 2012. Strikingly, always looking at Eurostat data, the number of jobs lost in the EU28 over the same period is almost exactly the same (-5.4 millions).

This is plain unacceptable. And teaches us two lessons

• Our welfare system is not capable anymore to shield workers from the hardship of business cycles. We progressively dismantled welfare, becoming “more like the United States”. But we stubbornly refuse to accept the consequence of this, i.e. that fiscal and monetary policy need (like in the US) to be proactive and flexible, so as to dampen the cycle. Constraints to macroeconomic policy, coupled with a diminished protection from the welfare state, spell disaster, social exclusion, and the destruction of the social fabric.
• The second lesson is that these numbers are there to stay. The economy may recover, but the loss of confidence, of capacity, of social status of those who we pushed into hardship, will stay with us for years to come. We are destroying human capital at amazing speed.

What is enraging is that none of this was inevitable. The crisis could have been shielded by less ideological leadership in European institutions and in some most European capitals. Frontloading of austerity in the periphery was a terrible mistake. Not accompanying it with fiscal expansion in the core was a crime, showing of how little solidarity counts, facing the protestant urge to “punish the sinners”.

The result is that one of the most affluent economic areas of the world barely notices that one quarter of its population lives at risk of poverty. What is wrong with us?