There's an old Italian saying: Quando dio, ole castigarci ci manda, quello che desideriamo. Or, to somebody who's neither Venetian nor da Vinci: "When the gods wish to punish us, they answer our prayers." At least, that's what I'm told. I know more words in Elvish than in Italian.
The Republican Party and His Royal Mittness are praying for the sweet nectar of a November victory and, thus far, they've staked 2012 on a vision of austere, limited government that takes a pair of scissors to the American social safety net. (For details, see Paul Ryan's House budget, moving out of committee this week and coming to a theater near you).
Let us imagine, for a moment, that the powers that be answered Mr. Romney's prayers. Such a dream remains as rosy as ever, unclouded by the harbingers of popular discontent... so long as Mitt didn't see a newspaper this week.
Perhaps you missed it too. In a stinging rebuke to the politics of austerity, Europe's incumbent governments have, once again, been taken to the electoral woodshed by voters. We've seen this movie before. This week it was French and Greek leaders who were dismissed from office, an honor they now share with officials recently fired from Spain, Portugal and Italy. (It's gotten to a point where, if you remember sleeping in a disgusting youth hostel in some foreign land, chances are, its government has been thrown out on its ass in the last year).
How did we get here? Almost every nation across the pond has watched its balance sheet bleed red over the course of the Recession-turned Eurozone crisis-turned Bailout Fiesta, and the battle to restore credit has been an ugly affair. Led by German Chancellor and Continental Mistress of Thrift Angela Merkel, nations like France, Greece, Italy and Spain have been forced to cut their services across the board, often in return for EU bailout funds. The British have gotten out their hatchets too, with Prime Minister Cameron slashing at tuition, welfare benefits and public sector employment like the Demon Barber of Fleet Street.
The result has been an unmitigated bloodbath for European coalitions seeking to chop their way out of debt. France's Nicolas Sarkozy will have more time at the beach after losing by a margin of 52%-48% to Socialist challenger François Hollande; and the Greeks are even madder, channeling the rage of Achilles into a full-scale beat-down of their governing bloc for taking on the public sector. The country's formerly mainstream New Democracy and Pasok parties dropped to a 33% national voter share from 77%, replaced mostly by the surging Coalition of the Radical Left (or Syriza), as well as the disturbing gains of lunatic fringe groups like the extreme-right Golden Dawn Party. Besides being a collection of Neo-Nazis who march under a swastika-like symbol and argue for a platform "ridding the land of [immigrant] filth," these fellows seem to be a real pleasure.
And what of our English brethren in the UK? It appears that Prime Minister Cameron has ignored the sage advice of Mary Poppins at his own peril: just a spoonful of sugar helps the medicine go down! Sugar must have been among the benefits cut, because there was nothing sweet about the bitter austerity Britain's been asked to swallow. If last Thursday is any indication, the British have had quite enough medicine, thanks, Dave. Cameron's ruling coalition got hammered in local elections, as the Conservatives-Liberal Democrats alliance lost 823 seats to the opposition Labor Party, in what analysts viewed as rejection of Cameron's tough budget reductions.
Maybe if the PM had gotten Julie Andrews to sing the budget cuts, or softened the blow with a chimney sweeping musical number... but alas.
So, what relevance does all this have for U.S. fiscal direction? Conservative publications are spinning the kind of nothing-to-see-here storyline you get when you're rolling past a spectacular car wreck and there's everything to see. Sure, there are significant distinctions between the U.S. and Europe, which make comparisons problematic: we have a centralized, independent monetary policy under our control, thus avoiding the eurozone nightmare; we have historically tolerated a leaner welfare state; and government-formation stateside isn't an exercise that takes place more frequently than the crowning of American Idol winners.
But to dismiss the backlash against budgetary cuts in Europe is a mistake. Please don't misunderstand me: federal spending must be cut here too, and it must be cut substantially. You can't close our fiscal hole just by raising taxes on the wealthy. (I say this both to enthusiastic proponents of the Buffett Rule here at home, as well as the victorious Monsieur Hollande, who campaigned on his own plan to tax French millionaires at a 75% rate, with what I'll call "le Buffett Rule." Copyright.)
The conclusion that the U.S. is going to need both revenue increases and spending decreases in balanced proportions is hardly groundbreaking, but it also happens to be true. That's why last week's shellackings across the Atlantic were bad news for both Democrats and Republicans -- because it will make bipartisan deficit reduction that much spookier for everybody in Washington.
And so I ask Mr. Romney, Mr. Ryan, and the rest of the fiscal hawks of the right: Do you gentlemen really want a piece of this? Be careful what you wish for. You might actually get it.
Follow Ben Zweifach on Twitter: www.twitter.com/BenZwei
1) Elections in France were completely normal elections where voters vote for the guy promising most who will now step into the scary world that is called reality where slogans and promises have no value whatsoever. Almost 50% voted for Sarkozy anyway and Hollande will become the latest disappointment of the other half in no time. Hollande can either start spending and ruin France (for which, I believe, he is too clever to do) or start new negotiations with Berlin that will never accept the elimination of austerity. We will soon see Merkollande.
3) Greece is a ruin. They dont care who they vote for, because it doesnt matter who they vote for. had they voted Santa Claus into parliament his gift to them would have been austerity. Austerity will be imposed on them anyway as long as they stay in the Eurozone because then they will be subjected to the terms and conditions set by other Eurozone members (and the IMF). If they wish to escape it, they will have to leave the Eurozone. So it will be interesting to see what will happen. Will they leave or not. Thats the question.
Many Europeans saw the following movie: Americans trumpeting all over the place the solution is to be found in overspending an uttery bankrupt state into a new paradise by pumping money created out of thin air into the economy like a rain shower where some bankers and corporations will then have it evaporated into thin air within a split second as in: "Thanks ..... aaaaaaaaaand, it's gone!".
Stimulus as the "solution" to create the next super bubble which lasts while it lasts?
And what did it result in? Corporations using the funds to get rid of debt and restructuring to get more competitive as in laying people off and newly created poor jobs as in "I used to have a descent salary at company X, got laid off, and now flip burgers, but hey, a job is a job so i count as an improvement in the statistics. I am economic recovery."
Whether the European approach works or not remains to be seen but I can understand Europe has less faith in the American stimulus fairy tale than the US have itself.
So I assume you do not deal in facts? As numerou articles have pointed out, no one in the EU with the exception of Greece and some Baltic countries tried any form of austerity.
See this article although you could easily attach many more;
http://www.nationalreview.com/articles/299425/europe-s-failed-austerity-michael-tanner
Instead taxes have been continually raised and spending has increased all the while citizens scream in terror over these DRASTIC measures.
Keynesian economics has failed and will continue to fail, just watch France repudiate its debt and be the second of the cascade to fall in the EU. If you disagree with what the countries are doing, fine, but at least have some facts on your side before you discuss more revenue increasing measures.
Now, people, that's cheap. Four hours ago it was a "Latin saying" and it was "not Catholic priest or Marcus Aurelian". Now, after I pointed that out, you just silently change the Lead-in and make me look like a fool.
Spain has a relatively large production, but they had an enormous property bubble, leaving many people in debt. There it would be an idea to restructure the property debt and write some of it off. France has no property bubble, but has a very rigid work code, that maybe should be loosened. They could easily use investment money in a good way. Italy has large private savings, so they can actually buy their own state debt and don't need foreign money.
There are different problems in different countries, but in the long run if you owe too many money away, your freedom to act will go down the drain. So the debt has to come down one way or another.
The US debt is bigger than the EU debt in % of GNP, so you also have some problems to solve.
personally I think we should tax the financial institutions, that made this calamity in the first place.
The Question Is 'How Best To Default' and Not 'How Best to Maintain the Unsustainable'
Greece is the most awkward of the EU countries by far in terms of economic fit.
There is no conceivable way that Greece can remain in a single currency union without regular transfer payments from the rest of the EU to compensate them for holding a highly overvalued currency relative to their own economy, geared more to the Germans and the French.
So either the EU will change politically, which is highly unlikely, or Greece will leave the EU and once again obtain its own currency.
I think that outcome is almost predetermined.
The best solution is for Greece to simply leave the EU, default on its debts, nationalize its banks, and restore the drachma at some highly devalued level. I think Iceland shows the way in this. This will greatly disappoint the private financiers who are licking their lips at the prospect of buying real national assets on the cheap with overvalued paper.
The worst problems will be for the European banks who hold Greek debt.
I would consider seriously an action that allows the banks to simply write off the Greek debt, and declare all CDS on Greek sovereigns null and void except for those who actually hold Greek bonds, to the extent of fifty percent of their nominal value.
Have you been paying attention to what goes on in Washington? Bipartisan it ain't.
And the rejection of Austerity in Europe was based on a very simple fact and understanding.
It didn't WORK.
At ALL.
The recession there has been much, much worse than in the USA because of numerous factors, not least the much derided by Republicans Obama stimulus package- that didn't do enough even so.
Growth will overcome the deficit issues, and tax cutting doesn't stimulate it; and spending cuts only create fear and contractions that decrease growth AND increase deficits at the same time....
The "austerity" medicine is counter-productive.... maybe American voter wil open THEIR eyes too....
Austerity hasn't worked and cannot work.
It completely undermined consumer confidence and employment. National growth has suffered and government revenues affected so that the fall in spending has often been outstripped by falls in tax income, making deficits worse.
The old "paradox" well known to Keynesians- government actions to cut deficits make things worse.
Where was all this concern during Mr. Bush's eight years squandering Mr. Clinton's surplus?
Where was all this concern during Mr. Bush's TWO unfunded wars? Indeed, Mr. Bush wanted everyone to go out and spend, spend ,spend like no tomorrow.
And where is this concern about taxing the rich? It's derided as "class war"- utter nonsense as if making the rich pay the same rates as the poor is unfair.
Fiscal disipline means public spending cuts.
Period.
There is no alternate reality to choose.
Greece wants to have its cake and eat it to. It does not want to default and pay the consequences, so it takes the money from Germany to keep it afloat. The Germans, wanting to help out a fellow country AND (self interest) keep their common currency from being trashed, pony up the funds. But in order to sell it to their constituency they have to demand austerity.
These elections are putting Greece on the tracks to a wreck. That wreck has been a long time coming. If they abandon austerity then they will most likely default because they will have no more money to spend and will not have access to credit to borrow the funds. The result will be FORCED austerity because the only expenditures they will be able to afford are the ones they have assets/revenues to cover. No one, and I mean NO ONE, will loan them a penny.
Besides that, when it comes to US- EU relations and questions what can or should be done or not, the issue is not "austerity" or "deficit spending". It's about the US stopping to protect the Wall Str banks (including "shadow banks" like hedge funds, etc.) with agreements like Basel II and III and get into negotiations about a Financial Transaction Tax, outlawing each and any derivative that is not useful for the "real economy", decreasing the size of the largest financial institutions to a degree that no market player is able to bend the arm of sovereign nations.
Lecturing the EU to (one way or the other, ECB QE or Eurobonds or huge Stimulus) just open the floodgates so private banking write offs remain limited is not helping.
It is unclear if such a plan will actually increase long term employment because the private sector is likely to be far more cautious under Hollande and there may be some job exporting of higher-paying jobs to neighboring countries. It is clear Hollande does not have the support of the business community in France and that by itself will prove problematic.
And we all know: Election campaigns and what's said there is one thing, the political details later entirely different. Later, coalitions have to be kept in mind as much as what is simply achievable at the negotiation table and what not.
IMO, some things are already pretty clear because, if you look/ listen closely, the stage is already set: Hollande (just like Sarkozy would) will get a "Growth Pact" amendment. He will not get Eurobonds or a different mandate of the ECB. The later not only because of German or other EZ vetos but most likely because even he will not be willing to pay the price Downing Streets demands for that change in the Lisbon Treaty.
One of the differences Merkel herself (IMO as a German) but even more her current government coalition (namely Free Democrats; FDP) at the helm make that would change should a Social Democrat become Germany's Chancellor is the willingness to squeeze, if necessary, PM Cameron and the UK out of the EU/ force them into an EU referendum. Merkel never wants that.
It could be done via majority decisions that critically impact the EU's dealing with the financial sector.
Let's face the facts: All of them, Merkel, Hollande, Sarkozy, etc. etc. are centrists. The differences between them are ultimately minuscule. Other than "conservatives" in the US or UK, all continental conservative parties just like all social democrats share the view that if necessary states must be strong. "Libertarians" (of all shades) form parties of their own here and they are and remain minority parties.
As far as I noticed, Hollande is also committed to balance the French budget. The only difference I am aware of is: one year later. Now, in the greater scheme of things, one year later or earlier doesn't really matter.
I mean, do you, do I, really have the knowledge to predict the outcome of this: Hollande wants to achieve a balanced budget one year later than Sarkozy. On the other hand, he removes the French troops one year earlier from AFG. Probably, both policies offset each other.
That raises the question, having rejected austerity, what are they going to do to avoid it? Seems to me that they're going to get it whether they want it or not.