Americans, who face enforced austerity with the March 1 “sequester” of the federal budget, need only look across the Atlantic to see how they should not react to such spending cuts.
Europe is four years into its debt crisis, and last year it had appeared to be muddling through. But recent political instability in a few EU countries reveals a surprising level of public fear over dire economic conditions as well as anger toward elected leaders.
The results of Italy’s Feb. 24-25 election were the most telling. Voters overwhelmingly rejected the austerity policies of Prime Minister Mario Monti. But no one party received a winning endorsement, creating enough political instability to rattle markets and political confidence in the 17-nation eurozone.
On Feb. 27, the prime minister of Slovenia was ousted following massive protests in a nation that once was Europe’s shining new star but has seen its economy shrink by 2 percent.
And in the European Union’s poorest country, Bulgaria, the government quit last week after days of protests over austerity measures.
The weakening of Europe’s leadership through such public feelings of loss was also reflected in a New Year’s warning by French President François Hollande. He told France to expect almost no economic growth and rising joblessness. In Britain, Prime Minister David Cameron had to offer a referendum on whether Britain should exit the EU, even as the nation’s triple-A debt rating was downgraded by Moody’s.
Last year, Europe thought it had seen the last of unplanned transitions in governments, which happened in Greece, Slovakia, and Romania. But while eurozone leaders were able to stem investor fears in financial markets, the Continent’s economy shrank at a 2.3 percent annualized rate toward the end of 2012.
Youth unemployment is rising, reaching nearly 25 percent. Budget deficits are surprisingly bigger than expected, even in thrift-minded northern European nations such as the Netherlands. Europe’s cherished social-benefits system is being whittled away.
Another political bellwether will be an election this September in the eurozone’s financial bulwark, Germany. Chancellor Angela Merkel could be on the ropes if voters believe she has conceded too much in her insistence on austerity in Europe’s troubled economies.
Fixing the debt overhang in the EU may now be second in importance to addressing the public backlash to austerity and the ballot-box anger. Voters could continue to simply switch leaders in hopes of finding a solution to the Continent’s little or no economic growth.
America’s big, clumsy cut in its federal spending may not draw the same level of outrage. But lawmakers must learn from Europe that they are dealing with fear as much as budget items and anger as much as tax rates.
A public sense of vulnerability cannot be ignored. The first step in building confidence would be to find a political compromise on difficult fiscal choices. The last thing the United States needs is to import Europe’s instability.