[Analysis] How austerity is pushing Europe to extremism

Unemployment is now structurally higher than before in many regions, especially in the southern member states and many rural areas, and social media has captured, commodified and amplified discontent to a level of intensity that many now fear democracy itself is in danger.

Often overlooked, however, are the effects of austerity.

Austerity — public spending cuts to reduce government debt — is associated with severe economic costs through lowering GDP, employment, private investment, and wages.

But the effects of public spending cuts on extreme party' vote shares have been badly-understood. This is now starting to change.

In a recent study, three academics, Ricardo Duque Gabriel, Mathias Klein and Ana Sofia Pessoa, have been able to convincingly show that austerity measures have been a significant driver of political extremism across Europe.

"The effects of austerity on the economy are pretty well known, but the electoral effects less so," Klein, a senior economist at the Swedish central bank, told EUobserver.

The study was motivated by what is going on right now. "The Alternative for Germany [AfD] is growing a lot," said Klein, referring to the far-right populist political party, which recently saw historical gains in much of Germany.

Although the most-recent electoral results are not covered by the data, by studying 200 national and regional election results between 1980 and 2015 and then comparing them to cost-cutting policies, the authors could isolate an effect that cuts across time and offers a remarkably exact picture.

For every one percent cut in regional public spending, the vote share of extreme parties increases by 1.5 percentage points in the first year and three percentage points two years after the cuts.

So how does it work?

Surging extremism

The study covers eight countries that, for differing reasons, have implemented stringent cost-cutting regimes. These include Austria, Finland, France, Germany, Italy, Portugal, Spain, and Sweden.

During the period of study, there were two significant periods of austerity. One during the 1990s following the agreement and ratification of the Maastricht Treaty in 1992-3. The second extended period of austerity took place between 2010 and 2015.

Both periods saw the average voter share of extreme left and right parties increase. From a little below 10 percent in 1990 to around 18 percent at the decade's end. And then from approximately 16 percent in the early 2010s to 25 percent in 2015.

This rise can not wholly be explained by austerity alone.

But by weighing everything that drives people into the arms of the extreme fringes of the political spectrum — other major factors include general economic conditions and unemployment — results suggest that public cost-cutting accounts for six percent of the variation towards extreme parties' vote share.

Six percent may not seem like much, but Klein explains it is a "big number", considering so many factors play into voter behaviour, that clearly shows that austerity-driven extreme voting is an EU-wide phenomenon.

In two weeks, Klein will present the findings to the EU Commission's research arm.

Doom loop

One of the challenges facing the researchers was isolating the austerity effects from other economic impacts.

To verify the results do not stem from a general economic downturn, findings were compared with austerity measures before the Great Recession, which showed a similar increase in extreme voting.

By poring through reams of policy documents and understanding the motivation of spending cuts, the team was able to differentiate the effects of general economic downturns — which they describe as 'non-austerity recessions' — from actual austerity policies aimed at reducing debt.

What the data shows is that people's trust in the government deteriorates much more during austerity recessions compared to regular economic downturns.

On the whole, "austerity-driven recessions amplify the political costs of economic downturns considerably by increasing distrust in the political environment," the study finds.

"This might point toward a 'doom loop' between distrust in the political system and more extreme voting following fiscal consolidations," the authors write.

The effects of austerity on extreme party voter-share tend to be larger in less densely populated rural areas and on the unemployed. "Richer households have a lower tendency to go for extreme parties," said Klein.

Austerity leads to the largest shift toward extreme parties for European elections, with far-right parties benefiting more from a rise in voter support.

Considerable differences exist between countries and regions. The effect has been stronger in France, Spain and Italy when compared to western Germany, for example.

However, the data is less suited for country-by-country analysis. "We merge all the data to show that the effect is there and that it is significant," said Klein.

With new rounds of austerity already announced, Klein and his co-authors are now working on extending the results to account for more recent increases in extreme voting behaviour, although not all of the necessary data is available yet.

Klein emphasises that his study is not meant to show that austerity is always bad.

"If debt levels are unsustainable, it is necessary to cut costs," he said.

"But it is a matter of finding the right time. If you have to do it, do it in good economic times because then the movement towards extreme parties is much smaller," he added. "And focus spending cuts on wealthier and more densely populated regions."

The opinions expressed in this article are the sole responsibility of the corresponding author, Mathias Klein, and should not be interpreted as reflecting the views of his employer, Sveriges Riksbank.