Speaking at the World Economic Forum in Davos, Switzerland on January 25, 2013, Mario Draghi, president of the European Central Bank(ECB), said the bank’s program to buy the bonds of heavily indebted E.U. states had been “very helpful” in reducing the perception that the euro was on the verge of collapse. He also pointed to the structural reforms that heavily indebted states had enacted as “now bearing fruit.”[1] He urged those governments to continue to implement structural reforms so those states could take advantage of the ECB’s low interest rates and easy credit to banks. In short, the strategy of the ECB was to use monetary policy as leverage for long-term-oriented structural reforms at the state level. Political risk analysts listening to the central bank official likely came away with a more optimistic stance on the long term prospects for the E.U. economy.
Even though the progress achieved already on the debt crisis provided “light at the end of the tunnel,” the matter of structural reforms at the state level was subject to politics and was thus more uncertain. Also, economic conditions could worsen, hence making it politically and economically more difficult to make the needed structural changes. Chancellor Angela Merkel of the state of Germany warned the governors of heavily-indebted states such as Greece and Spain against the impulse to reduce the pace of structural reform in the face of economic stagnation. She pointed to the record unemployment numbers announced in Spain on January 24, 2013 as fodder for the anti-austerity political forces there. She further observed that “experience tells us that often pressure is required to enable structural reform.” The obstacles could have come from political officials or bureaucrats at the state level, and even from the people, upset at the economic austerity cut-backs hitting themselves and even the poor who depend on funding for sustenance. Advocates for those people were doubtlessly contesting that survival in the short run should not be sacrificed for long-term structural reform.
Interestingly, making a qualitative (i.e., difference in kind) distinction between government programs that keep people alive on a daily basis and all the other budget items could actually permit more budget cutting because so much would be found to be subject to cuts without risking lives. In the U.S. at least, the qualitative difference has typically been made between domestic and military spending. This dichotomy has enabled huge increases to military programs even as cuts to food assistance have been proposed. Of course, the unemployment caused by a cancelled defense contract could put people in danger of losing their house or going without food. However, such individuals would be covered by the continuance of the programs providing sustenance as long as they were held apart from the other spending categories. Having an indirect effect on sustenance, such as military contracts can, does not render a particular budget item itself in the category of vital programs for sustenance, such as building more halfway houses for the mentally ill who are homeless. This reflects the American culture more, wherein much more is deemed conditional than in Europe, where the principle of solidarity has been and is still more salient politically.
In short, long-term fiscal reform need not be at the expense of people eating and having shelter as well as medical care. Based on the firm foundation of human rights, programs primarily geared to sustenance can be isolated and protected such that the structural reform can be implemented more smoothly. Buffering sustenance programs from the massive cuts everywhere else would significantly reduce the vehemence of the protests and soothe the path of structural reform by isolating the entrenched officials and bureaucrats as the only primary obstructionists.
See also Essays on the E.U. Political Economy, available at Amazon.
Interestingly, making a qualitative (i.e., difference in kind) distinction between government programs that keep people alive on a daily basis and all the other budget items could actually permit more budget cutting because so much would be found to be subject to cuts without risking lives. In the U.S. at least, the qualitative difference has typically been made between domestic and military spending. This dichotomy has enabled huge increases to military programs even as cuts to food assistance have been proposed. Of course, the unemployment caused by a cancelled defense contract could put people in danger of losing their house or going without food. However, such individuals would be covered by the continuance of the programs providing sustenance as long as they were held apart from the other spending categories. Having an indirect effect on sustenance, such as military contracts can, does not render a particular budget item itself in the category of vital programs for sustenance, such as building more halfway houses for the mentally ill who are homeless. This reflects the American culture more, wherein much more is deemed conditional than in Europe, where the principle of solidarity has been and is still more salient politically.
In short, long-term fiscal reform need not be at the expense of people eating and having shelter as well as medical care. Based on the firm foundation of human rights, programs primarily geared to sustenance can be isolated and protected such that the structural reform can be implemented more smoothly. Buffering sustenance programs from the massive cuts everywhere else would significantly reduce the vehemence of the protests and soothe the path of structural reform by isolating the entrenched officials and bureaucrats as the only primary obstructionists.
See also Essays on the E.U. Political Economy, available at Amazon.
1. “Davos: ECB’s Draghi Says ‘Real’ Economy Still Stagnant,” Deutsche Welle, January 25, 2013.
