INTERNATIONAL POLICY ANALYSIS Euro Crisis, Austerity Policy and the European Social Model How Crisis Policies in Southern Europe Threaten the EU’s Social Dimension KLAUS BUSCH/CHRISTOPH HERMANN/KARL HINRICHS/THORSTEN SCHULTEN February 2013  The harsh austerity measures that, according to official policy, are supposed to over­come the euro crisis have once again plunged Europe into recession in 2012. Auster­ity policy has proved – in Greece, Italy, Portugal and Spain(GIPS) – to be primarily an attack on wages, social services and public ownership.  The EU has developed a new form of wage policy interventionism(Euro Plus Pact, Six Pack). The principles of centralised collective agreements and general applicabil­ity are being undermined in the GIPS states and collective bargaining systems are being decentralised. Real wages fell in these four states from 2010 to 2012 at an above-average rate.  As regards pension policy the GIPS states have introduced reforms that significantly curtail spending growth in pension systems. Relative pension levels will fall dramati­cally in these states up to 2040, measured in terms of the wage replacement rate.  Due to the euro crisis the policy of privatising public assets in the GIPS states has been given new impetus. Greece has been hardest hit and is planning a veritable fire sale of state property.  The abovementioned interventions in Southern Europe mean that the liberalisation of the European Social Model – which up until the crisis was to be observed mainly in western and eastern Europe – will be implemented in the EU as a whole. If the path of economic austerity, despite all opposition, is maintained until 2014/2015 and then experiences a new upswing the policy disaster for European social democracy and the trade unions will be complete.