While Europe’s Governments Spend Less, U.S. Spends More

Published December 13, 2010

In a once unthinkable reversal, Americans are seeing a massive expansion of the scale and scope of their government’s spending, while Europeans are coming to terms with austerity, conservative fiscal policy, and a reexamination of the state’s role in society.

Americans have long gazed across the Atlantic, awed by their European cousins’ government spending. For the first time in the postwar era, those roles are reversed.

Shortly after the Conservative-Liberal Democrat coalition government came to power in the United Kingdom in May 2010, David Cameron and his cabinet asked every government entity—except the National Health Service and Foreign Aid Department—to make plans for 25 percent and 40 percent cuts to their budgets.

These moves are echoed on the continent by measures that, if less dramatic, are no less significant in their contrast to the deficit spending the Obama administration has embarked upon and advocated as the best solution for the nation’s economic woes.

EU Rejects ‘Quantitaive Easing’
In France, President Nicholas Sarkozy’s government, struggling to reduce the country’s budget deficit, is pushing a two-year increase in the retirement age to 62.

Meanwhile, Germany—Europe’s largest economy and, as host to the European Central Bank (ECB), the center of gravity for the EU’s monetary policy—has emerged as the world’s strongest critic of President Obama’s stimulus-driven recovery plan. Chancellor Angela Merkel’s government has instituted an aggressive deficit-reduction program while ECB President Jean-Claude Trichet has ruled out further interest rate changes and “quantitative easing.”

German Finance Minister Wolfgang Schaeuble recently told Der Spiegel magazine, “I have great doubts about whether it makes sense to pump unlimited amounts of money into the markets.… I can’t see the economic argument for this move.”

Pragmatic Moves
However, the way the European governments have framed the new austerity programs signals this is not to be “Morning in Europe”—a Reaganesque effort to change the way things are done—but instead a series of pragmatic, reluctantly taken, necessary measures. For members of the Euro zone, there is the added ability to use as justification the ECB requirements that deficits run under 3 percent of GDP and public debt stay under 60 percent of GDP.

President Sarkozy has done this with his pension proposals and France’s overall austerity program. Faceless central bankers and European treaty obligations provide easy alternatives to ideological debates. Even David Cameron’s Conservatives, the heirs of Margaret Thatcher, have distanced themselves from talk of “rolling back the frontiers of the state.”

In Scotland, where the Thatcherite legacy is near-universally reviled, First Minister Alex Salmond and his Nationalist government can pass the ideological buck to London and insist their public sector pay freeze is designed to save government jobs from Conservative cuts.

The European electorate remains the European electorate; therein lies the lack of ideology-driven justification for austerity. While mounting deficits and the debt debacle in Greece may have convinced a silent majority that austerity is a practical necessity, they still play into the European caricatures we know and love.

Anger in France
In France, for example, millions of protesters and strikers, in the typical French style, have taken to the streets to bring the country to a standstill over the pension age increase. Trains have been disrupted, one in four gas stations has run dry, and some cities are filled with violence against police and property. An October 18 poll showed while a slim majority supported the reform, more than 70 percent of respondents supported the demonstrations.

Even Germany’s stimulus-busting rhetoric can be cynically linked to historical economic realities. Germany’s criticism of inflationary Federal Reserve policy in the United States doesn’t look so principled when one considers that Germany, the world’s second-largest exporter, stands to lose big if the dollar weakens.

In Britain, with its more market-friendly electorate, the public response likewise fits the reputation of the British national character. Despite far more dramatic cutbacks in the UK than in France, the Gallic fire in the streets is contrasted with the stiff British upper lip. Apart from tube workers in London, calls for strikes have fallen on deaf ears as the nation resolves to tough it out through austerity.

Continuing Support for Socialism
That resolve, however, by no means signifies an acceptance that the state is now responsible for fewer aspects of people’s lives. That was made evident in the controversy surrounding the Browne Report, the coalition government’s higher education proposals. In Scotland, where university students pay no tuition and receive interest-free loans, student unions reckon the proposed cuts could force up fees and defeat the ideal of universal access to higher education. The Edinburgh University Students’ Association steadfastly opposes the cuts.
Those looking for the end of European social idealism will be disappointed. Not only is that not how the cutbacks are characterized by the governments implementing them, it is precisely when the cuts seem to infringe on longstanding national social goals that they run into trouble.

Whether it is Cameron’s coalition refusing to touch the NHS, the French burning cars to preserve early retirement, the Germans favoring a strong dollar for their exports, or British students decrying the end of universal higher education, the points at which austerity meets its malcontents prove that although the playing field may have tilted a bit in Europe, the rules of the game remain largely the same.

Ian Mason ([email protected]) is originally from Chicago and now writes from Edinburgh, Scotland.