Finance: EU austerity policies undermining rights, increasing inequalities

Austerity policies have all too often gone hand-in-hand with undermining economic, social and cultural rights, while at the same time increasing inequalities in income and wealth within the European Union and its member States.

This is one of the main conclusions highlighted by Juan Pablo Bohoslavsky (from Argentina), the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, in his report (A/HRC/34/57/Add.1) to the UN Human Rights Council, which meets here from 27 February to 24 March.

The Independent Expert had conducted an official visit to Brussels from 30 May to 3 June 2016, focusing specifically on the response of the European Union to the sovereign debt crisis that affected several member States and its impact on the enjoyment of human rights, in particular economic, social and cultural rights.

In his report to the upcoming thirty-fourth session of the Human Rights Council, the rights expert said ensuring financial stability and controlling public debt are important tasks.

However, Mr Bohoslavsky said that he is deeply concerned about the "paradigmatic shift" that has taken root in the European Union in recent years that is undermining a previously balanced approach to ensuring economic stability, equality and social cohesion in favour of a disproportionate focus on budgetary discipline and competitiveness.

"Austerity policies have unfortunately all too often gone hand-in-hand with undermining economic, social and cultural rights. At the same time, inequalities in income and wealth have increased within the European Union and its member States."

Fiscal consolidation and structural reform policies implemented in Cyprus, Greece, Ireland, Portugal and Spain have deepened economic recessions and further increased unemployment and poverty.

Harsh cuts to public expenditure on social protection, health care and education cast doubt on whether sufficient priority was given to sheltering vulnerable groups from the effects of the crisis. In addition, social partners, civil society organizations and affected groups and individuals should be better consulted in programme design, review and evaluation.

The rights expert pointed out that economic reform programmes agreed between European Union member States, the European Commission and the European Central Bank were implemented without any official assessments of their impacts on economic, social and cultural rights or on vulnerable groups.

"Programme reviews and official evaluations by the European Commission were concerned mainly with whether economic and fiscal targets were met and contained only limited analyses of adverse social impacts and how they could be better prevented in the future."

"To regard human rights considerations as exogenous to such economic reforms not only ignores international human rights law obligations, but also deprives the relevant policy discussions of a critical perspective," Mr Bohoslavsky underlined.

In his view, economic reform programmes should undergo human rights as well as social impact assessments, and their results can change policy choices.

Such assessments should be carried out in consultation with affected rights holders and civil society and be more than an exercise in ticking boxes to be meaningful.

In addition, evaluations of past reform programmes should not only assess whether they managed to reduce budget deficits, restore debt sustainability or enhance economic growth, but whether they ensured a fair and equal distribution of the burden of adjustment within society.

The Independent Expert said: "The economy is society's servant, not its master, and financial policy is a tool that Governments must ensure serves the best interests of all, and not just the privileged and powerful."

It is therefore absolutely relevant to know the extent to which economic and social rights have been successfully protected, what gaps exist and who is most affected by lack of protection of their rights.

This exercise would not only allow lessons to be learned from past mistakes to be better equipped for the future, but would ensure that identified infringements of social and economic rights can be addressed and corrected.

According to the report by the Independent Expert, the financial and economic crisis of 2009 affected the European Union as a whole, putting additional pressure on the public finances of many European Union member States. Several countries resorted to financial consolidation policies to address banking crises, public deficits and debt.

Five euro-area countries - Cyprus, Greece, Ireland, Portugal and Spain - requested financial support from the Union and its member States as they experienced very serious difficulties in relation to their financial stability.

Support in the form of loans from European institutions, including new financing mechanisms set up by European Union member States, and the International Monetary Fund (IMF) was provided on the condition that they implement fiscal consolidation and economic adjustment policies.

"Fiscal adjustment policies have the potential to impair a number of internationally recognized human rights, including the rights to food, housing, health, education, social security, water and sanitation, and the right to just and favourable conditions of work," said the rights expert.

"The crisis and the response to it have resulted in increased poverty, homelessness, reduced gender equality, dramatically increased youth unemployment in Greece, Portugal and Spain, and cuts to social welfare benefits and pensions. Some countries witnessed drastic reductions of social and health services for persons with disabilities while the number of people not being able to access affordable health-care services has increased."

According to the report, the integrity of international human rights law needs to be ensured when international organizations, international financial institutions and regional integration organizations recommend or prescribe certain policies to their member States.

"International organizations have to act in accordance with human rights obligations binding on them on the basis of their own foundational treaties, customary law and general principles of international law, or human rights treaties ratified by them. In addition, they have to ensure that measures proposed or enforced by them respect the human rights obligations binding on their member States."

While international human rights bodies have recognized the constraints that States may face during a financial crisis, there are limits on the extent to which States may deviate from their obligation to realize economic, social and cultural rights to comply with conditions imposed by their creditors, said Mr Bohoslavsky.

Member States also have to comply with their human rights obligations when they exercise decision-making control in international organizations, for example, through their membership on the boards of international financial institutions such as the European Stability Mechanism or IMF.

"Certain procedural obligations should be respected when designing, negotiating and implementing adjustment policies. These include the obligations to undertake a meaningful human rights impact assessment and to ensure transparency, participation and accountability," said the Independent Expert.


In his report, the Independent Expert focused on impacts in euro-area countries that were subjected to strict conditionalities for receiving lending, and highlighted his concerns in relation to the rights to work, to health and to social security.

He said in the years following the financial crisis, public debt levels increased significantly in most European Union countries and have remained above the official debt ceiling set for euro-area member States at 60 per cent of GDP.

In Greece, Ireland, Portugal and Spain, public funds used to stabilize the financial sector and to safeguard the banking sector from collapse contributed significantly to the increase of public debt. Private debt was turned into public debt. In Greece, the present level of public debt is financially and socially unsustainable.

"Current debt levels may easily become a risk for the enjoyment of human rights.
While debt service costs in some countries may still be manageable in the short run, they could significantly increase should the period of historically low interest rates come to an end, making the refinancing of public debt more expensive," the rights expert cautioned.

Even today, the cost of servicing debt consumes important resources that could be better used for productive and social investment to fulfil economic, social and cultural rights.

This is the case in Greece in particular which, in the view of the Independent Expert, requires debt relief to boost economic and social inclusive growth.

"Regrettably, fiscal consolidation and economic reform policies have so far largely failed to reduce public debt levels."

During the period 2008-2014, overall government expenditure hardly changed in real terms for the European Union as a whole. However, in Greece, public expenditure was in free fall, with extreme cuts in the field of health care.

While the number of unemployed persons in Greece increased from 380,000 in 2008 to 1,270,000 in 2014, spending on unemployment benefits went down, indicating that the majority of the unemployed had either never received unemployment benefits or had lost their entitlement to receive them owing to long-term unemployment.

On the other hand, Cyprus, Ireland and Portugal significantly increased spending on unemployment benefits.

Government expenditure in Ireland was reduced in real terms, with particularly harsh cuts in education, benefits and services for persons with disabilities, the sick, families and children.

Portugal made large spending cuts in health and education. Overall government expenditure contracted in Spain, where significant cuts were made in family and child benefits, education and public health care; only expenditure on old age pensions increased.

Cyprus, Greece, Ireland and Portugal reduced funds for combating social exclusion and poverty.

"This raises the question of whether mitigating negative social impacts on vulnerable groups was actually as much of a priority as claimed in some official policy documents," the rights expert said.

Expenditure on benefits for sick persons and persons with disabilities was also slashed significantly in Cyprus, Greece, Ireland and Spain.

The Independent Expert said he is concerned that the economic reform policies implemented across the European Union have caused severe cutbacks in health services and social welfare entitlements for persons with disabilities.

"These cuts have undermined their right to an independent living, reduced support services for families with disabled children, inhibited the de-institutionalisation of persons with disabilities and restricted the right of children with disabilities to live in family settings. The right to an adequate standard of living and social protection was also disproportionately affected."

The report also noted that fiscal consolidation policies often included reducing the number of public employees. Restrictions on hiring in the public sector were introduced in Cyprus, Greece, Ireland, Portugal and Spain.

In Greece, measures also included a labour reserve scheme aimed at transferring or dismissing workers employed in the public sector. Conditions for collective dismissals were relaxed in Greece and Spain.

Public sector wages were cut in Cyprus, Greece, Ireland and Portugal and minimum wages frozen in Portugal and cut in Greece, including to levels below the statutory minimum wage for young workers entering the labour market.

The number of unemployed persons in the European Union increased to about 22.9 million in 2015, 6.1 million more than in 2008, before the financial crisis.
Within the European Union, the highest unemployment rates can still be observed in Greece (23.4 per cent as at June 2016), followed by Spain (19.5 per cent in August 2016).

Unemployment in Cyprus (12.1 per cent) and Portugal (11.0) has also remained above the European Union average (8.6 per cent).

More worrying, 10.9 million persons, or nearly one in two job seekers, have been without a job for more than 12 months.

Long-term unemployment has remained high, particularly in countries that underwent adjustment programmes. In Greece, 73.1 per cent of all unemployed have been without a job for more than 12 months; in Ireland, Portugal and Spain the figures are 56.2 per cent, 57.4 per cent and 51.6 per cent respectively.

In the European Union as a whole, 4.2 million people between the ages of 16 and 25 are without a job, with youth unemployment rates reaching 47.7 per cent in Greece and 43.2 per cent in Spain.

Women are still more frequently affected by unemployment than men within the European Union. In Greece, this difference is particularly marked: the female unemployment rate stands at 27.8 per cent, compared with 19.8 per cent for men.
A similar pattern can be observed in Spain (21.5 per cent versus 17.7 per cent).

The fiscal consolidation policies have limited the affordability and accessibility of public health-care services in programme countries. In Greece, a large number of individuals dropped out of the public health insurance schemes.

Reform measures included reduction of health-care staff, reduction in the number of public hospital beds and an increase in co-payments for outpatient treatment or medication, effectively shifting the cost burden from public budgets to citizens.

Waiting times for medical examinations and surgery increased in Cyprus, Greece, Ireland and Spain.

Measures implemented in countries affected by adjustment included reform of pension and social welfare systems, including unemployment benefits or benefits for families, children and persons with disabilities.

"The reform measures have so far not been able to reduce poverty and material deprivation, in particular among children, migrants, the unemployed, single-parent households and female pensioners," the Independent Expert said.

In several countries, the official retirement age was increased and measures taken to reduce early retirement. In addition, existing and future pensions were cut.

In Greece, Portugal and Spain, bonuses were cut or completely abolished. In Portugal, all pensions except the minimum social security pension were frozen, and some were reduced.

However, the number of persons inadequately covered by social security, unemployment or social welfare benefits has increased. About 121 million people in the European Union were at risk of poverty or social exclusion in 2014, 4.7 million more than in 2008; this increase was concentrated mainly in euro-area countries implementing austerity measures and structural reforms.

In Cyprus, Greece, Ireland, Portugal and Spain there were 3.8 million more persons at risk of poverty and social exclusion in 2014 than in 2008. Furthermore, it is unlikely that the European Union will reach its own target of reducing the number of people at risk of poverty or social exclusion by 20 million by 2020.

The Independent Expert said that the European Union should be commended for several initiatives to mitigate the consequences of the economic and financial crisis.

In this context, he cited the Youth Employment Initiative to address youth unemployment, an investment plan for Europe to boost growth and employment, and the European Commission's Social Investment Package.

While welcoming these initiatives, he, however, said that they do not yet appear to have been able to address in a satisfactory manner the poverty and unprecedented levels of youth unemployment in European Union member States.

The Independent Expert also welcomed the considerable effort made by the European Union to incorporate a human rights-based approach in its development cooperation and its external policies.

For example, in its Action Plan on Human Rights and Democracy, the European Union recognizes the human rights dimension in the areas of social policy, health, education and access to food and water, and promotes and supports the development and increased coverage of national social protection floors for the promotion of economic, social and cultural rights.

In the area of trade and investment policy, the Action Plan specifies that the European Union will continue to develop by 2017 a robust and methodologically sound approach to the analysis of human rights impacts on trade and investment agreements in ex ante impact assessments, sustainability impact assessments and ex post evaluations.

In his view, there is, however, a need to enhance policy coherence in the field of external and internal human rights policies of the European Union.

"No credible argument can be made that what can be done externally for the benefit of rights holders outside the European Union cannot be done internally, for the benefit of its own citizens and residents. A human rights- based approach should therefore also guide country-specific recommendations and inform the lending of European institutions to its own member States," he said.

He further said it is deplorable how little lending conditionalities were formally assessed for their potential harm to human rights holders before they were implemented.

Guidance published by the European Commission suggests that in the field of economic governance, including "recommendations, opinions and adjustment programmes", impact assessments are not a priori necessary, on the basis that such "specific processes are supported by country specific analyses".

It may therefore not be surprising that the European Commission did not publish any social or human rights impact assessments in relation to the financial assistance programmes implemented in Cyprus, Ireland, Portugal or Spain, said Mr Bohoslavsky.

Moving forward, the Independent Expert called for a change of approach. In this context, he welcomed the first social impact assessment by the European Commission, undertaken in August 2015 for the third economic reform programme currently being implemented in Greece.

"It is a first step in the right direction, although the social impact assessment, which was produced on short notice, was not able to assess the economic reform measures against international human rights standards," he said.

"There is also significant room for improving the monitoring of social and human rights impacts of financial assistance programmes in the context of official programme reviews or evaluation reports."

The Independent Expert, amongst others, recommended to the European Commission, the Council of the European Union and European Union member States that they ensure that human rights impact assessments of macroeconomic reform and financial assistance programmes supported by the European Union are prepared before, during and after their implementation.

He also called on these institutions to develop particular guidelines for conducting human rights impact assessments for macroeconomic reform programmes, building on the normative components of internationally recognized economic, social and cultural rights and on existing impact assessment guidelines and tools.

They were also called upon to incorporate human rights obligations into debt sustainability analysis to ensure that debt service does not undermine the fiscal space of States for ensuring social protection and accessible and affordable public services in the field of education and health care.

By Kanaga Raja.

Source: SUNS - South North Development Monitor, SUNS #8405 Monday 20 February 2017.