Three words to think about as we near the next budget fight on Capitol Hill: Austerity has limits.
As I have written often, I view the austerity trend as a global one, not a national debate. That’s important to remember because other countries are further along in their austerity implementation, policies that should give the U.S. Congress real examples of what works and what’s a disaster.
Italy’s soon-to-be former prime minister makes that case. “Public support for the reforms, and worse, for the European Union, is dramatically declining, following a trend which is also visible in many other countries across the union,” Mario Monti said in The Guardian newspaper. “To revive growth and fight long-term and youth unemployment would be the best message to counter the mounting wave of populism and disaffection with the European Union, showing that Europe is listening to people's concerns.”
Anti-austerity efforts are gaining strength in the United Kingdom and Spain.
But the dumbest austerity action came last week in one of Europe’s tiniest countries, Cyprus.
As part of a bailout deal, that country’s government agreed to a tax on the savings accounts of its citizens ranging from 6.75 percent to 9 percent. The president of Cyprus said Sunday night it was either the tax or his country would have to leave the European Union and face national bankruptcy. “I chose the least painful option, and I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots,” Anastasiades said in The Global Post.
So the people of Cyprus rejected that policy and began withdrawing money as fast as they could before any such tax could be imposed; a classic run on the banks. (more…)