May 8, 2012

IBD Calls Out Establishment Press For Promoting ‘Myth’ of European ‘Austerity’

In one of a virtually endless stream of such examples, a Monday Associated Press report by Elaine Ganley and Greg Keller on challenges facing newly elected French Prime Minister, Socialist Francois Hollande, described him as “the leftist who has pledged to buck Europe’s austerity trend.”

What a deceptive joke. Europe’s attempt at “austerity” can’t be a “trend,” because it hasn’t even started. The “Fiscal Treaty” involved (at Google Docs; at RTE News [large PDF]) hasn’t even taken effect. Article 14, as explained by RTE’s Europe Editor Tony Connelly, “will enter into force on January 1 2013 so long as 12 member states have completed ratification.” A Monday editorial at Investor’s Business Daily took the press to task for its pretense, and in the process noted facts about the monstrous growth of government in EU countries the U.S. establishment press won’t report (bolds are mine throughout this post):

EU Voters Nix Austerity, Though It’s Not Been Tried

The stunning outcomes of elections in France, Greece and Italy were called “a sweeping repudiation” of austerity by more than one media outlet. But how can you repudiate something that’s never been tried?

The EU tried austerity, but it didn’t work. The media and Europe’s beleaguered leftist politicians have made that their refrain, and apparently a lot of European voters now agree.

… Now, the left’s argument goes, a new “growth strategy” premised on more government spending, not less, is needed — just like in Spain, Greece and Italy.

The only problem: The idea of EU austerity is a myth.

In fact, despite a lot of wailing, very few cuts have actually been made in Europe. Austerity? Starting in 2008, most governments enacted large stimulus packages.

Sadly, stimulus in Europe, as in the U.S., didn’t work. As proof, the EU has now entered into its second recession in four years, with soaring debt, rising unemployment and few prospects for future growth.

Austerity? Spending has boomed in the EU over the last decade. During the 2000s, EU member nations collectively boosted government outlays by 62%. Average government spending by EU nations today stands at about 49.2% of GDP — vs. 44.8% in 2000.

On its own website, the EU itself ridicules the notion of government austerity as a “myth.”

“National budgets are NOT decreasing their spending, they are increasing it,” the EU says, noting that in 2011, 23 of the 27 nations in the EU increased spending. This year, 24 of 27 will do so.

In fact, the Fiscal Treaty which is the object of so much wrath doesn’t represent a major change, and isn’t aggressive in any meaningful sense, as RTE’s Connelly explains:

… the Treaty largely gathers up existing commitments and locks them into a binding treaty to give them greater effect.

The 3% (of GDP) deficit target remains the primary goal for all countries who are following programmes to bring their finances under control.

… Under the Stability and Growth Pact governments are expected to keep their debt levels at, or close to, 60% of GDP.

… (countries with debt-to-GDP ratios of over 60% of GDP) under the Fiscal Treaty signatories are obliged to lower their debt levels by an average of one twentieth per year.

“One twentieth per year” means that a country like Connelly’s Ireland, whose current debt-to-GDP ratio is 119%, need only bring the ratio down by about 3% per year for the next 20 years to be in compliance.

Connelly also points out that “… the European Court of Justice (will have a role) … in assessing whether or not that rule has been properly enshrined in national legislation,” and that “from 1 March 2013 a country will have to have ratified the Fiscal Treaty in order to avail of any future funding from the European Stability Mechanism” (i.e., the EU’s bailout fund). More individual member-state sovereignty evaporates.

Connelly recounts important history that few know about the Grecian formula for failure: “Greece had not stuck to the rules and had actually hidden the true extent of its budgetary situation from Brussels so that by the time the truth emerged the damage was done. … because the fines for breaching the rules kicked in at the very end they were pointless, because theoretically at that stage the country would be on the verge of bankruptcy and unable to pay the fines anyway.” Is any Greek politician or bureaucrat ever going to suffer real legal consequences for this? (Readers know the answer.)

If the U.S. government were placed under the restrictions theoretically imposed by the fiscal treaty, the Obama administration couldn’t possibly continue on its current reckless course. The 3% rule would drive the need for the budget deficit to be about $470 billion or lower (compared to yet another projected shortfall of over $1 trillion), and the debt-to-GDP ratio (excluding intergovernmental obligations) to be trimmed from its current level of roughly 70% ($10.91 trillion in debt as of May 4 divided by $15.46 trillion in annual GDP).

Of course, the U.S. press never performs such a comparison.

Cross-posted at NewsBusters.org.

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2 Comments

  1. Austerity Bites – But It Isn’t the Problem

    http://www.openmarket.org/2012/05/08/austerity-bites-but-it-isnt-the-problem/

    Veronique has responded with more detail. Her case is essentially that in most countries, “austerity” has been implemented more in terms of tax rises than in spending cuts. The fact that the UK and France, both of which supposedly voted against austerity last week, have not actually implemented spending cuts, is best illustrated by this alarming chart.

    As always Tom, the chart says it all!

    http://www.openmarket.org/wp-content/uploads/2012/05/austerity.png

    Comment by dscott — May 8, 2012 @ 4:53 pm

  2. [...] IBD Calls Out Establishment Press For Promoting ‘Myth’ of European ‘Austerity’ [...]

    Pingback by IBD Calls Out Establishment Press For Promoting ‘Myth’ of European ‘Austerity’ | PERSUASION IN INK — May 8, 2012 @ 11:03 pm

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