New figures from the Organization for Economic Cooperation and Development show that social welfare programs shielded some of the poorest Europeans from the harshest effects of the global financial crisis – programs that are now being cut as countries adopt austerity measures.The new study by the Paris-based Organization for Economic Cooperation and Development looks at a number of countries hit by the financial crisis between 2007 and 2010, including the United States and Mexico. But its findings are particularly significant for the struggling eurozone, where a fierce debate is underway about whether austerity measures have helped or hurt.The OECD’s findings show that the poorest – especially children and youth – were hardest hit by the financial crisis. The wealthiest 10 percent were among the least affected. But that, says OECD social policy analyst Horacio Levy, was before social benefits and tax breaks were factored in.”What we have seen in most European countries, [is that] the welfare state – the benefit system and the taxes, which are progressive – they have reacted to this big push on income inequality and they have buffered quite a substantive part of that increase,” said Levy,
Because it only covers through 2010, the OECD study does not account for more recent changes – notably austerity measures, or what experts call “fiscal consolidation,” adopted by some of the hardest hit eurozone countries. In many cases, these measures cut the safety nets that helped buffer the poor.
Portugal is a case in point.
“If you look at the 2013 social assistance to Portugal, it’s gone. In fact, Portugal is one of the few countries that has reduced dramatically social assistance as part of the consolidation package,” said Levy.
The crisis initially spared many old people because a number of European countries didn’t cut pensions. But that is also changing, Levy says, as states slice spending to reduce their debt.
The OECD’s findings come as politicians and economists battle over which recipe – spending cuts or stimulus measures – will conquer a recession that continues to grip many eurozone nations. Whatever the answer, Levy says, recession-fighting measures should take income disparities into account – or the poorest people will pay the steepest price.