I think there is general agreement that European governments — as well as the U.S. government — should consider adopting austerity measures to cope with financial difficulties.
The problem is simple: a government can spend more than it earns for only a limited time. At some point, the government will be so indebted that it risks financial collapse — a depression, for example. The solution is just as simple: the country must adopt austerity measures — cut spending.
On one level, cutting spending is not difficult. The United States has begun to take such steps, especially regarding the military. The armed forces have suffered serious cuts, and if follow-on cuts become a reality, the effects will be devastating.
The problem comes when a government moves to cut spending on civilian programs. Most politicians have one goal: getting re-elected. Holding office is an ego-expanding experience. It means a decent income and access to the best medical and educational institutions. Also, being close to decision-makers can be an aphrodisiac. The more important the issues, the more enticing the experience.
There is a second part of the problem. Most citizens want more government support for their most important concerns — medical, housing, educational or other areas. While most citizens in the United States or Europe agree that there have to be spending cuts, they want the cuts to affect someone else. Unions do not want their members’ benefits reduced and their power diluted; manufacturers fear greater regulations, and everyone worries that their benefits may be cut while their taxes go up. Consequently, it is not surprising that little gets accomplished. Very few politicians have the political courage to take steps that are critical for the nation but that are unpopular.
Let us suppose that there are politicians ready to take major actions — in Greece, for example. In Greece some political parties are very ideological. They want to implement an ideological system that has little chance of solving the practical problems facing the populace. We have seen one politician after another try to form a coalition government only to realize that such a coalition is an illusion The heart of a coalition government (or any democratic system) is compromise. It is hard to compromise when individuals believe they 100 percent correct.
The current situation is different from many in the past. We are looking at a complex organization in Europe. I am not an economist, but I know that what happens in one nation in the European Union will affect others — and the United States.
Greece’s inability to address its insolvency has already created a major — and growing — problem. The Greek economy is still afloat for one reason: The EU is providing money to prop it up.
Unfortunately, Greeks are not happy about the strict austerity measures the country agreed to in order to get EU aid. In fact, the government recently collapsed for just this reason. If one looks at the Greek political system, one sees that most citizens were employed in one way or another by the government. There were also problems with the tax system (the rich were often protected), but the bottom line was that the Greek government was spending far more on social programs than it was taking in.
The key country in Europe for financial support is Germany. It has carried out the kind of reforms the rest of the continent needs to take. It also is clear that German Chancellor Angela Merkel has just about had it with the Greeks.
What’s more, it is not just the Greeks who face the dismal fate of major government cutbacks if they hope to remain solvent. Despite Francois Hollande’s recent presidential victory in France — by a populace that does not want major government cutbacks — he will have no alternative. Portugal has already begun cutbacks, while Spain, Italy and Ireland also need to sharply cut government spending.
In a sense this is a vicious cycle. Politicians promise benefits to stay in office even when they know the country cannot afford them. But but when the chickens come home to roost and the costs are tallied up, they face the need to cut back. Unfortunately, few politicians in this country or abroad are prepared to tell the populace that it is time to tighten their belts and give up or cut back on some of the benefits they enjoy.
Dale R. Herspring, a University Distinguished Professor at KSU and a member of the Council on Foreign Relations, is a retired U.S. diplomat and Navy captain.