Third-quarter unemployment data from Eurostat, Europe’s statistical agency, provides still more proof actual cuts in teh size of government — what I call “real austerity” — contributes to real economic growth. Baltic countries continued a three-yeear trend of decreasing unemployment. Those, primarily in Western Europe, who engaged in phone austerity – when government claims to have tightened its belt but actually increased overall spending and taxation — saw unemployment continue to increase.
Unlike their peers, Latvia and Estonia both made fast and deep reductions in government spending and in tax revenue during their 2009-2010 austerity programs. Unemployment spiked in 2009 as these economies took the painful-but-necessary steps to restructure themselves to become competitive and productive. Since then, their unemployment rates plummeted faster than any other European country throughout 2010 (the year following austerity’s initial implementation) and consistently have continued to decrease at faster rates than the Eurozone and European Union averages.
The rate of unemployment within Latvia is still relatively high (14.1 percent vs. the EU average of 10.1 percent), but it continues to fall at an increasing rate. Estonia now boasts a relatively low rate (9.9 percent vs. the Eurozone average of 11.5 percent). But this is not relevant when assessing the effectiveness of austerity. What matters is by how much the unemployment rate is declining post-austerity relative to economies that have not engaged in austerity. This compares the speed of recovery. And by this measure, Latvia and Estonia — the paragons of fiscal austerity — win hands-down.
Of course, unemployment doesn’t tell the whole story. For a more in-depth analysis of austerity’s success, check out my article in National Review. I compare the effectiveness of real austerity in the Baltics with the ineffectiveness of phony austerity in the U.K.