Europe is Addressing Their Debt – Will We Follow?
Vacations are a time to forget about the stresses of the real world. A time when you can drop work, loosen up the purse strings, and have some fun. Vacations must come to an end. And like any working person knows, the first Monday back at work is the worst day imaginable.
Europe is coming off their welfare state vacation. Huge pensions, early retirements, and cushy entitlements were nice while they lasted. Those days are over. In their place…austerity. Austerity is Europe’s Monday back at work.
Greece was the first to hear the alarm clock. In the 1980s the Greek government sought to give disenfranchised citizens a “shot at living like the middle class.” To accomplish that the government began to hand out public sector jobs, increase the size of pensions, and hand out government subsidies. In reality all it accomplished was a bloated public sector and an uncompetitive private sector that caused its government debt to skyrocket to 120% of GDP. As with anyone who spends more than they earn – bankruptcy followed.
Other European nations have fallen under the same political spell – spend money to win votes. Politicians learned that comfortable jobs and big benefits were popular with its citizens. Who knew! Unfortunately, such a myopic view of politics inevitably leads to a fall. Greece was the first domino to fall; now France and Spain are taking steps to make sure they are not next.
France has already admitted that keeping its AAA credit rating “is an objective that is a stretch.” Determined to fight off a public deficit that is 8% of GDP, President Sarkozy has launched a harsh austerity package to save billions of euros. The president has already expressed commitment to close tax loopholes, reduce government running costs by 10%, and institute pension reform for its public workforce.
“The restoration of public finances should not just be an undertaking of the government, but of the nation. It should be a long-term engagement and for that the governance of our public finances must change,” Sarkozy said.
Spain has been battling an even worse sovereign debt crisis. On May 29th , the nation lost its AAA credit grade at Fitch Ratings, following a downgrade by Standard & Poor a month earlier. The reason? Spain has the euro region’s third largest budget deficit, a 20% unemployment mark, and regional governments unwilling to tackle labor union reforms. As Raphael Gallardo, chief economist at Axa Investment Managers in Paris, explains:
“The Spanish government had been in denial from 2008 to early 2010 about the magnitude of the crisis so now you have consequences. . . Now with the acceleration of austerity measures, like the shocking cut to civil servant wages, they finally got real and measured the severity of the crisis.”
Denial. Sound familiar? The United States is deep into this stage of grief. A recent study found that private wages account for a record low share of personal income while government benefits were at a record high. Despite our government deficit and national debt, which rival any European nation, the size of our entitlements continues to grow, all in the name of “stimulus.” But as Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities, says this is “the system working as it should.”
No, this is the government driving us toward the brink of bankruptcy. The United States must soon realize that the welfare vacation is over. Big government social safety nets designed to catch everyone, not merely those that fall, are failing before our eyes. While we are not Greece, Spain, or even France, we are not immune from the same types of governmental hubris that led to their fiscal downfall. Americans are increasingly aware that tough budgetary decisions loom, yet we are left perplexed at the Left’s acceptance and complicity in making America more like Europe. Our government must wake up, realize its Monday, and get back to work. It’s tough, but for the good of the nation, vacation time is over.
by Brandon Greife, Political Director of the College Republican National Committee
Read more at www.collegerepublicans.org