THE GOVERNMENT GIVETH BUT CAN IT TAKETH AWAY??

I found the results of this past weekend’s electoral results in a variety of European contests distressing, although not entirely surprising.  In Greek Parliamentary Elections, moderate parties of the left and the right, who had help broker a fiscal bailout package, were rejected in favour of more extremists.  In France, President Sarkozy, who was German Chancellor Angela Merkel’s strongest austerity ally, was defeated in favour of a Socialist replacement.  Meanwhile, municipal elections in Great Britain and state elections in Germany produced similar results.

What on the surface appears to be a rebuke of austerity in reality is an indictment of the entire European Welfare State.   Western Europe prides itself on a democratic tradition that, in fact, originated in Greece.  Yet in the post war ¾ century, obtaining and maintaining political office has meant a bidding war between politicians resulting in reduced work weeks, increased benefits, earlier retirements and reduced productivity.  In short, cradle to grave socialism has led to economic malaise and unsustainable levels of debt.

Is it any wonder that voters who bought into decades of electoral promises that increased the role of government in their lives would reject attempts to contract the role of the state??  There is no doubt that the austerity measures imposed by the former Greek Government were severe, as were the ones proposed elsewhere.  However, dire consequences require severe remedies.  And make no mistake the economic and fiscal reality of many western European countries were either dire or if left uncorrected, would become so.

So now what??  The Greek electorate can reject legislators who promote austerity but they cannot eliminate their unserviceable debt.  The French electorate can turf its President who promotes austerity but they cannot force bankers, who demand austerity, to continue to lend money to insolvent states.

Nobody wants to lose their “entitlements”.   If your father received a pension at age 52, why would you want to work longer??  If the state has been providing free daycare, who would want to start paying for that service??  But the issue is not one of choice but one of necessity.  Several European countries are bankrupt and others will be without severe fiscal correction.  If a family is illiquid, they must take corrective measures no matter how unpleasant.  If a company is bankrupt or insolvent, they will either comply with demands of creditors or have a trustee wind down their operations and distribute their assets.  These matters are never pleasant or painless; they are however from time to time necessary.

The medicine, although bitter, is always preferable to the malady.  But even in Canada, where our debt to GDP Ratio is a fraction of those in Europe, mild austerity is met with protest.  Quebec  Students are rioting to protest comparatively modest tuition increases and Opposition MPs continue to oppose changes to the Old Age Security System (notwithstanding they will not take effect for 10 years)!

But the reality is the public will almost always be opposed to and protest cuts to programs, benefits and services to which it has become accustomed.  As it is politically difficult to remove entitlements once provided, governments must be extremely prudent and cautious when considering those programs in the first place.

Brent

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