Austere Prospects for Austerity

With German Chancellor Angela Merkel mandating austerity for all European nations, particularly those who are asking the European Union for rescue packages, as a condition for access to Germany’s deep pockets (considered to be the vault that can save Europe)… the wisdom of a conservative disciplined Teutonic solution for all of Europe is definitely being called into question. The price for accepting a bailout in the EU means giving up a significant degree of local autonomy over economic matters. Not only is what happens in Europe critical for the United States (one third of global economic traffic passed between these two regions) on a direct basis, but since American politicians are tripping over themselves to impose austerity on America as well, the lessons of how such programs are working in Europe seem to be lost on our elected officials.

China continually pressures the United States to get its debt under control, an admonishment that often is a reply to our pressure to for China to get their currency to float freely, a move that would make Chinese goods more expensive (reducing our trade imbalance). And clearly, we need to figure out how to spend within our means. The problem is that the meat-axe budget cutting that has been imposed on countries like Greece, Spain and Portugal have created angry levels of unemployment, particularly among the young, that have decimated the standard of living of those nation and have actually made the economic situation worse. Unemployment in Spain has hit 25%, and Greece and Portugal are not too far behind. By cutting jobs and reducing government spending by severe amounts to reduce the ratio of debt to gross domestic product, the GDP numbers have fallen as fast as the debt numbers are reduced. The net result is a series of severely impaired economies with no significant net change in those cherished ratios.

While Germany mired itself through a highly disciplined decade of austerity to rebuild its economy, it also spent money on infrastructure, modernizing its manufacturing capacity and retraining educating its workforce, making it the competitive giant it is today. Unfortunately for the rest of Europe, the newly mandated debt limits and austerity measures have all been about cutting as much and as fast as nations can slash and burn. The UK eliminated programs and cut half a million government jobs. Debt dropped. And so did the UK economy: “Britain’s economy slid into its second recession since the financial crisis, with official data released Wednesday unexpectedly showing a fall in output in the first three months of this year, Reuters reported from London… The Office for National Statistics said Britain’s gross domestic product had fallen 0.2 percent in the first quarter of 2012 after contracting 0.3 percent at the end of 2011, confounding forecasts for 0.1 percent growth and piling pressure on Prime Minister David Cameron’s embattled coalition government.” New York Times, April 25^th.

The Netherlands, seemingly strong and stable with an exceptional credit rating, is finding it difficult to meet the new German-inspired austerity standards… prompting a fall of the incumbent administration: “The Dutch government information service says that Prime Minister Mark Rutte and his Cabinet have resigned after failing to reach agreement on reducing the country's budget to meet European guidelines.” ABC News (April 23^rd). Conservative French President Nicolas Sarkozy, who is viewed as in Angela Merkel’s pocket, is expected to go down in flames in his reelection bid against Socialist rival, Francois Hollande. And while France’s austerity measures are nothing when compared to what has been imposed on Greece, Spain and Portugal, the demands on the French people are auguring for a change at the top.

So if American politicians believe that cutting Medicare, Social Security, getting tough on unemployed kids struggling with their student loans while increasing their effective interest rates, increasing school class size while presiding over the biggest cuts to education in American history, laying-off government employees and cutting social services while leaving potholes unrepaired, lengthening lines at all levels of government services (renew your driver’s license recently?), creating “trickle down” misery while maintaining a military (Department of Defense) that gobbles up a budget that equals the ten next highest military budgets combined is going to make them popular, maybe they need to look long and hard at the lives of politicians who made exactly the same choices in Europe.

I’m Peter Dekom, and I believe that we have the lowest caliber of senior elected officials that I have seen in my lifetime making some of the most destructive long-term decisions in memory.