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Austere Old Europe

October 6, 2010

Here in the US we are heading into the high season for politicking. The midterm elections are just a few weeks away, and the political situation in the US has soured remarkably since January 20, 2009. Dirty politics and attack ads assault our senses every time we turn on the television or the radio. One of the most popular phrases thrown around lately is “European style socialism.” Many of those on the political right are advocating tightened budgets, severely curtailed spending, and tax cuts. In a political season full of surprise reversals perhaps the most surprising is this: those very practices are currently being practiced all across Europe!

Americans paying much attention to European politics, or even to the evening news, have probably heard about David Cameron’s austerity proposals in the UK, and the Greek crisis has loomed large in the headlines – many times with ominous headlines like “Is the US the next Greece?” But these events don’t seem to terribly surprising to many Americans. We have long drawn a line between “European” and “British,” the US traces its roots back primarily to England in most of the American founding stories, plus the Brits and Americans fought side by side at the Marne, Normandy, and in Iraq and Afghanistan. And in Greece’s situation there really doesn’t seem to be too many other options since their economic situation is so very dire and nobody is going to give them any financial assistance without a lot of strings attached. But the list of countries where austerity measures are being enforced is much larger than I believe most Americans realize. Germany, Spain, Portugal, Ireland, Germany, Romania, Italy, the Netherlands, even France(!) are all setting some serious austerity packages into motion pledging to slash the debt to GDP ratio by several percentage points apiece.

Now austerity packages in Europe don’t always mean the same thing that it might in the US and might not fully appease the American right. For example, France, Spain, Greece, Germany, Ireland, and Portugal are all slated to see tax increases of some sort, whether it is an income, VAT, or carbon tax. However many of the other measures being proposed by these countries may sound more to the American model, cuts to public sector spending, trimming government payrolls, freezing pay increases, taking pay concessions, and postponing government construction and renovation projects in order to bring the debt to GDP ratio back into line in these countries and (they hope) to stabilize their economies. Of course, as an historian I have to insert some historical perspective to the situation. We hear many comparisons between this recession and the Great Depression which started in 1929, and while there are many differences between the US and worldwide economies of 2010 there may be some generalizations which are important to know. Upon election in 1932 Franklin Roosevelt passed the National Recovery Act (NRA) which included the many “alphabet agencies” of the New Deal set up to get people back to work and money moving in the economy. What might not be as widely known is that Roosevelt himself ran on a platform of austerity and balanced budgets, and despite his Keynesian approach to ending the Depression he never fully gave up on that goal. With an eye to getting the budget back under control many of his New Deal programs ended between 1936 and 1937, by which time he hoped that the economy would be functioning well enough again to be able to reduce government spending. Indeed in most aspects the economy was back to its pre 1929 levels; however with government spending programs ending, the economy went back into a recession in 1937 forcing Roosevelt to abandon his attempt to balance the budget and to pass another spending bill.

Meanwhile back in 2010 the “European Socialists” are looking to austerity measures, and the American government seems to be struggling with the the next steps. It might pay to keep our eyes on Europe and its austerity measures to see where they lead the European economies. There are many who fret that curtailing spending may send some of these economies over the brink into steep recessions or depressions, but by and large the governments seem so to be betting that reigning in the sometimes sprawling public sector may be healthy in the short as well as the long term. Meanwhile in the US we have elections on November 2 and the outcome of this election may well determine the direction we take in the US. Or then again perhaps it will be as inconclusive as the vote earlier this year in the UK which ended with a hung parliament a week of insecurity and a coalition between the odd couple Tories and Liberal Democrats. For better or worse we are living in precedent setting times, and just as the Great Depression of the ’30s is still a standard touchstone for us today, we might well expect that in the decades to come we will be studying, debating, and arguing about the events unfolding around us today.

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