Austerity measures throughout Europe

[Hannah Bell]

Two weeks ago, European heads of state and the International Monetary Fund reached agreement on a €750 billion rescue package for the euro. Since then, not a day has gone by without the announcement of a new round of draconian austerity measures.

**Summary**

- Greece: wage and pension cuts, slashing social programmes and an increase in VAT
- Spain: €80 billion in cuts, 13,000 public sector jobs cut, 5% pay cut for state employees, pensions frozen, new child payment ended
- Italy: 24 billion in cuts, cuts in civil service jobs, pay, increased retirement age, health care cuts
- France: 10% administrative cuts, raise in retirement age, housing benefits cut, UE cut, museums cut
- Germany: 60 billion in cuts under discussion for june 6-7.

***end summary***

A study by the Carnegie Endowment for International Peace think tank in the US concludes that “the welfare states set up across Europe from the 1940s onwards with the aim of "suppressing popular unrest and paying off tensions that could lead to another continental war” are “unaffordable”.

But there is no shortage of money. The budget shortfalls that are being used to justify the dismantling of the welfare state are the result of the systematic redistribution of income and wealth from those at the bottom of society to those at the top....The trillions that governments pumped into the banks in 2008 and 2009 to prevent their collapse meant the public debt rose sharply. Recently published figures from the German Bundesbank prove this. In 2008 and 2009, some 53 percent of Germany’s new debt was a result of measures taken to rescue various financial institutions. The total new debt rose in these two years by €183 billion; the costs involved in supporting the financial institutions amounted to €98 billion.

Now the banks are exploiting the crisis they created to escalate their plundering of the working class. The governments and the EU act as their accomplices. This became clear last Friday, when in expedited proceedings the German parliament issued a blank cheque worth €148 billion...the Bundestag approved the fast-track loan guarantees amounting to half the federal budget, without even being clear to whom and under what conditions the money would flow.

http://www.wsws.org/articles/2010/may2010/pers-m29.shtml

[girl gone mad]

1. Coming soon to a theater near you.

[unblock]

2. why some think the best solution to budget woes is the shrink the economy, i'll never know.

on paper, there are 3 ways to deal with debt:

1) spend less
2) tax more
3) inflate the currency (thereby reducing the debt in real terms)

all these have side effects, but of these ways, spending less is the one that has side effects that most directly and obviously the problem worse. spending directly stimulates the economy, cutting spending directly causes it to contract.

taxing more may or may not have a contracting effect. it depends on who you tax, how much, what the expectations of future taxes are, etc. in some cases, taxing more can actually have a stimulating effect, as it causes people to work harder to achieve the same net result.

europe is in an interesting situation because there are economies with problems but also economies in better shape lumped together with a common currency. if they were all really on the same team they could cooperate and the weaker economies would be no problem. they should be INCREASING spending in the problem areas and INFLATING the entire currency to make the debt more manageable. they should announce now that they WILL be increasing taxes in the problem area but only to take effect in two years. the EXPECTATION of future tax increases has a stimulating effect and allows time to get things going before focusing on budget balancing, which is always better done when the economy is STRONG, not weak.

meanwhile, modest spending cuts (not "austerity" measures) should be happening in the strong economies like germany. not in the weak economies. run a surplus only when your economy can afford it.

[DemReadingDU]

3. When is U.S. going to implement similar austerity measures?

Some states it is obvious that they have money problems.

5/21/10 32 States Now Officially Bankrupt: $37.8 Billion Borrowed From Treasury To Fund Unemployment; CA, MI, NY Worst
http://www.zerohedge.com/article/32-states-now-officially-bankrupt-378-billion-borrowed-treasury-fund-unemployment-ca-mi-ny-w


Austerity measures will be coming to all of us, just don't know when.

[starroute]

4. The fear of communism helped keep them honest

Every since the Soviet Union failed, they've been salivating at the chance to pull the rug out from under the rest of us and not have to pay a price.

I expect them to largely get away with it in the short term -- but over the next five years, things could get very interesting.