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Debt crisis stole Christmas in Europe
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Question of the Day
Some economists reject the austerity programs and claim that only more government stimulus spending will bring Europe out of its financial crisis.
“Austerity is now part of the problem, not the solution,” said Simon Tilford, chief economist at the Center for European Reform. “Investors are looking at eurozone economies and thinking, ‘How are they going to grow? How are they going to service their debt?’ Uncoordinated and excessive fiscal austerity is further weakening their growth prospects.”
Earlier this month, European leaders in Brussels agreed on measures that will mean national governments could have their budgets overruled by EU officials. The only country to reject the plans out of hand was Britain, where Prime Minister David Cameron has embarked on the biggest program of public spending cuts since the World War II.
Mr. Cameron was under huge pressure from euro-skeptics in his own Conservative Party, who fear a loss of budget control to EU bureaucrats in Brussels. Britain still retains the pound as it currency.
For some countries, however, the loss of control over their own budgets feels like nothing new.
In October, Greek Prime Minister George Papandreou faced the prospect of enacting a new set of austerity measures on a nation already taking to the streets to protest public spending cuts and tax hikes.
He shocked Europe by announcing plans for a public vote on the latest EU bailout package and the tough economic conditions attached to the loan. Mr. Papandreou was quickly summoned before a panel of fellow European leaders and the IMF. Within days, plans for the referendum were canceled, and Mr. Papandreou was forced to step down.
Italian Prime Minister Silvio Berlusconi was next to fall, after parliament passed austerity measures demanded by the EU.
Even among Italians - who had despaired of ever ridding themselves of a leader facing court actions on charges of corruption, fraud, mafia collusion and paying for sex with a minor - there was a sense of unease at their leader being toppled, not by a dissatisfied electorate, but by the European drive to stabilize markets.
Technocratic governments have been installed in Italy and Greece, and both passed austerity budgets for 2012 earlier this month.
“On one hand you need to do this to get the [loans], but on the other hand this intensifies the so-called death spiral we are experiencing,” said Theodore Pelagidis, an economics professor at the University of Piraeus in Greece, referring to the new round of cuts passed by an overwhelming majority on Dec. 6 even as protests turned violent outside parliament in Athens.
France and Germany react
Meanwhile, the big two economic powerhouses, Germany and France, have been enacting austerity measures of their own.
France increased the value-added tax and corporate income tax and raised the retirement age last year, despite major protests. Germany has committed itself to balancing the national budget by 2016, something many feel is unnecessary for a county that has weathered the economic storm well.
“Where you need some stimulus is Germany, and you don’t really want austerity in places like France,” said Simon Wren-Lewis, professor of economics at Oxford University in the United Kingdom. “But the problem at the moment is [that] we are getting austerity everywhere, so there is no stimulus anywhere in the eurozone.”
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