Historically, Americans are impervious to what is going on in the rest of the world. But in today’s age of a global, interconnected economy, we ought to pay more attention.
If we think the current European crisis does not affect us, we are mistaken. When Spain recently teetered on the edge of default, your retirement account took a nervous dip. If large European economies like Spain or Italy actually default on their debts, the entire world could possibly face a backlash of 2007 proportions.
Germany’s Chancellor, Angela Merkel, and her ally, former French President Nicolas Sarkozy, took the lead at the start of the European crisis demanding that austerity would be the only acceptable solution to the problem. That approach has led to the brink of utter chaos. Unemployment rates top 20 percent, with protests and riots making for a worsening situation all around.
The French rejected continued austerity this week by booting Sarkozy in favor of socialist leader Francoise Hollande. The new French president promises to lead Europe in another direction by standing up to the German Chancellor.
The Greeks overwhelmingly railed against austerity measures by dissolving their parliament and conservative government. Never popular in the troubled nation, the austerity platform are now saying it cannot be endured.
And then at this weekend’s G8 summit at Camp David, European leaders acknowledged internal disagreement in a joint statement issued Saturday:
“The global economic recovery shows signs of promise, but significant headwinds persist. Against this background, we commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us.”
Closer to home, the leader of the ninth largest economy in the world — California Governor Jerry Brown — on Monday announced his own austerity plan after estimates of the state budget deficit ballooned to $15.7 billion.
Governor Brown proposed a tax increase for people earning more than $250,000 a year, and a lesser increase for those earning less:
“I’m linking the serious budget reductions, real increase to austerity, with a plea to the voters: Please increase taxes temporarily on the most affluent and everyone else with a quarter of a cent sales tax.”
Brown’s plan also includes a pay cut for state workers and cuts in education, health, medicare and welfare. These are similar cuts to those implemented in European countries that have proven to be unsustainable. The Governor, in fact, compared his State’s fiscal reality to Spain and Greece and our federal government.
Clearly there are many differences between the State of California and countries in the Euro zone, but is the story unfolding in Europe a lesson for us? As a Democrat surely Jerry Brown would prefer an alternative to austerity, but does he have a choice?
To quote Democritus:
“Nothing exists except atoms and empty space, everything else is opinion.”