Europeans Strike against Austerity

In 13 European capitals, workers marched to protest governments' austerity policies today. In Spain, unions called for the first general strike there in 8 years; with about half the 20 million workforce staying home, it was a measured success. They object to paying for the financial and credit crisis spawned by bankers' greed and regulators' foolishness.

Economic growth has returned to Europe, with the EU?s GDP expected to expand by about 1.8% according to the OECD. Last year, it contracted 4.2%. In other words, the recession is over there as well, and governments have started focusing on deficit reduction. Meanwhile, unemployment remains a trailing indicator, running at about 9.6% (similar to America's rate). That joblessness, however, is not evenly distributed across the EU. Spain, Latvia and Estonia, for example, have unemployment rates around 20%. It is not time for austerity in such places.

Governments worry that the "bond market vigilantes" will punish them with higher interest rates and credit rating downgrades if they don?t get their financial houses in order soon. Before they start slashing spending and hiking taxes, they may want to look at the case of Ireland. Faced with one of the worst balance sheets in the developed world, the Irish cut public sector pay by 20% and imposed all kinds of reforms. Moody's still cut the country's rating from Aa1 to Aa2 in July, and Irish GDP shrunk 1.2% in the latest quarter. It might have been worse, but the lesson here is that worrying about the bond markets may cause damage to the economy for little immediate gain.

The protesters' view is a valid one. As stated in a press release by the European Trade Union Confederation, "We didn't cause this crisis. The bill has to be paid by banks, not by workers." The ETUC demanded that governments "guarantee workers stable jobs, strong social protection and better pensions." Here, the union bumps up against economic reality -- people have to be economically productive, and right now, they are not producing in adequate numbers (the very definition of unemployment).

The unpleasant fact is that the world economy took a long time to get as messed up as it is, and therefore, it is not going to be salvaged overnight. The banks did do many stupid things, and it will take time for them to recapitalize, and governments must regulate their activities hereafter. That will upset many bankers. At the same time, consumers did many stupid things as well (McMansions, holidays to Bali on credit cards). Those days are not coming back any time soon.

That is not to say that European and North American workers should live like Chinese sweatshop employees. Four weeks vacation in Europe is part of what makes the European lifestyle attractive, enough time to enjoy one's prosperity. The American Dream is an idea that speaks for itself. In future, though, it can't be done on cheap credit; one will need cash on the nail.

© Copyright 2010 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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