Poor and under pressure: the social impact of Europe's fiscal consolidation

/ Home
/ Publications

Policy brief

Poor and under pressure: the social impact of Europe's fiscal consolidation

This Policy Contribution evaluates social indicators that can have a bearing on poverty, looks at the fiscal consolidation strategies of EU member sta

Publishing date: 31 March 2015
Authors: Zsolt Darvas Olga Tschekassin

Download

Europe faces major challenges related to poverty, unemployment and polarisation between the south and the north, which impact adversely the current living conditions of many citizens, and also negatively impact medium- and long-term economic growth.
Fiscal consolidation exaggerated social hardship. In vulnerable countries there was no alternative to fiscal consolidation, but in most EU countries and at aggregate EU level, consolidation was premature when the cyclical position of the economy was deteriorating.
Spending on social protection was shielded relative to other spending categories, but public bank rescue costs were high. While the changes in the tax mix favoured job creation, the overall tax burden become more regressive.
There is an increasing generational divide between the elderly and the young in terms of social indicators. Social spending on elderly people was favoured relative to spending on families, children and education. There is now a serious danger that a lost generation might develop in several member states.
Forceful policies should include bold structural reforms, better use of the European economic governance framework, more demand promotion, and a revision of national tax/benefit systems for fair burden sharing between the wealthy and poor.

About the authors

Zsolt Darvas

Zsolt Darvas is a Senior Fellow at Bruegel and a part-time Senior Research Fellow at the Corvinus University of Budapest. He joined Bruegel in 2008 as a Visiting Fellow, and became a Research Fellow in 2009 and a Senior Fellow in 2013.

From 2005 to 2008, he was the Research Advisor of the Argenta Financial Research Group in Budapest. Before that, he worked at the research unit of the Central Bank of Hungary (1994-2005) where he served as Deputy Head.

Zsolt holds a Ph.D. in Economics from Corvinus University of Budapest where he teaches courses in Econometrics but also at other institutions since 1994. His research interests include macroeconomics, international economics, central banking and time series analysis.
Olga Tschekassin

Olga Tschekassin, German citizen, was a Research Assistant at Bruegel from October 2013 until November 2014. She holds a Master degree in International Trade, Finance and Development from Barcelona Graduate School of Economics (Universitat Pompeu Fabra) and graduated with a thesis on index fund investment and its impact on commodity markets. She obtained her B.Sc. in Economics from the Free University Berlin with a thesis on measuring inflation expectations in the area of Time Series Econometrics. During her studies she spent a year as international student at Université Paris-I Panthéon-Sorbonne in France.

Before joining Bruegel, Olga gained experience in research as intern at the Organisation for Economic Co-operation and Development (OECD), Economics Department, working on macroeconomic risk and structural determinants of financial account positions. She worked as intern in Commerzbank Ag Paris in the Financial Strategy Unit conducting financial and market related analysis and prior to this, she held a position as teaching assistant at Free University Berlin at the chair of Knowledge Management.

Her research interests include Macroeconomics, Finance and International Economics. Olga is fluent in German, English, French and Russian and has a good knowledge of Spanish.