In the run-up to this weekend's G-20 meeting, there is growing U.S. pressure on Europe to suspend its austerity programs. Their advice is economically unreasonable, politically inappropriate and demonstrates a profound lack of understanding of European realities, says Ann Mettler, executive director of the Lisbon Council.
Europe has unfortunately a solid track record of failing to reform during good times, says Mettler:
France, for example, has not run a balanced budget in almost 40 years, which includes many years of growth when it would have been much easier to rein in public spending without causing major social upheavals.
Across the European Union, countries have been piling up debt at record speed, allowing the state to take on more and more future obligations, particularly for pensions, often without the slightest strategy of how to pay for these entitlements down the road.
Purporting to act in the cause of "social justice" and purposefully oblivious to a demographic outlook of aging and declining populations politicians cowardly shifted responsibility to future governments and generations.
But the future is now. The moment of reckoning has finally come and it cannot be squandered, says Mettler:
Standard & Poor's predicted back in 2006 that by 2050, the debt burdens in France and Italy would be well above 200 per cent of gross domestic product (GDP), and about twice as high in Portugal and Greece.
Two years before the financial crisis hit in 2008, S&P concluded in a study on aging that "a collective slide down the ratings scale would commence early in the next decade" i.e. now; absolutely nothing was done in response to that study.
It is a grave mistake to call the current effort to cut deficits "austerity" for they are rather the first serious efforts to at least try to live within our means. Europe will never be able to return to previous spending levels due to its declining share in the global economy, its ageing populations and the continued pressure on public finances. Calls to renege on Europe's long overdue return to something resembling fiscal discipline are therefore harmful, says Mettler.
Source: Ann Mettler,
America's Bad Advice for Europe, Wall Street Journal, June 24, 2010.
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First published by the National Center for Policy Analysis, United States
FMF Policy Bulletin/ 29 June 2010