Nova workboard

a blog from young economists at Nova SBE

Poverty in European Union

When I look to the perspective of poverty in Europe, with the financial and debt crisis, my concerns about the European Welfare State increase. The European Union has registered increasing unemployment rates in the last years (from approximately 7.3% in 2008 to 11.3% in August 2012[1]), 8% of the active population lives in poverty[2] and 22% are in risk of becoming poor[3].

The financial crisis caused an increase in the number of bankruptcies and unemployment rates. The governments are increasing taxes and cutting social expenditures in order to solve the debt crisis and reduce the deficit (the goal is to achieve a deficit of 3% until 2015). The European Union, in the last years have reduced the aid to Member Countries, ending with some programs as, for instance, the European Programme of Food Aid to the Most Deprived Persons[4] (PEAD) that benefits more than 18 million people in the European Union.

In a Europe with part of its Member States in crisis and straighter in its measures, the anti-poverty measures may decrease or be transferred to second plan. With the adhesion to the Euro, devaluation of currency is not possible, so, in order to decrease debt, governments are decreasing salaries and social charges – as a method of internal devaluation – which leads to a reduction of internal demand. What is happening in these in-crisis countries is that these policies are affecting more the low and medium classes, decreasing its welfare. If these measures were addressed to wealthier population by, saying, increasing taxes on higher income, the effects on private expenditure would not be as large as in the first case and we could benefit from the multiplier effects of the measure.

What should be, then, the role of The European Union? Should it be supportive of the austerity measures in order to reduce countries’ debt; or should it have a more social role by increasing or at least maintain aid or push national governments to do it?

Poverty brings not only economic questions, but also social ones. Poverty, besides decreasing productivity and efficiency, increases discrimination and exclusion, which concentrate poor people and creates a vicious poverty cycle.

The European Union should refrain its role in fighting poverty: instead of reducing aid, (the total non-crisis EU-27 average aid of the percentage of GDP decreased from 1.1 to 0.6[5], almost to an half), governments and The European Union should be more efficient in the distribution and application of subsidies and aid: one cannot forget that almost one quarter of the European population is in risk of poverty or social exclusion. The southern EU-27 countries are in crisis and the eastern countries are still recovering from previous regimes. The European Union should then impose targets and measures to these countries in order to avoid social conflicts and promote at least the minimum standards of living to all of them.

Concluding, in order to not increase poverty and avoid development reversals, the richest and poorest countries in the European Union should unify resources and improve the management and allocation of aid and funds applied to poor people instead of reducing them.

Dalila Figueiredo

[2] Poverty is measured with the threshold of 60% of income

[3] Font: Eurostat

[4] The program consists in releasing public intervention stocks of agricultural products to Member States wishing to use them as food aid for the most deprived persons of the Community.

Author: studentnovasbe

Master student in Nova Sbe

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