Europeans are not happy. Last week, many European countries saw eruptions of anti-austerity protests, from Greek doctors and railway workers leaving their jobs, to Spanish railway men, to an Irish man driving a cement truck before the Irish parliament, angered that there is money to bail out banks, but there is none to help people like him. There were tens of thousands of people protesting on the streets of Brussels, walking toward EU buildings, wearing their colorful labor union jackets. There were protests in Portugal, Slovenia and Lithuania, all having one common theme: enough with cost cutting, enough with tax hikes, enough with austerity measures!
Incidentally, the protest in Brussels took place in front of the EU Commission that, at the time, was trying to push through new penalties against member states that are drowning in deficits aimed at funding social programs such unemployment benefits. Not in the least bit surprisingly, it is the Germans who are asking for penalties, and, equally unsurprisingly, it is the French who don’t like to be told what price to pay, but rather want to make that determination themselves.
Why such strong opposition to austerity measures, knowing that the risks of leaving sovereign debt problem unresolved could not only drive EU countries back into the abyss, but also drag the rest of the world with them? Well, the European Trade Union Confederation finds the European Commissions’ regime of sanctions counterproductive and not something that will make things better, only worse. Unions fear that their membership will pay the highest price in the aftermath of the global economic crisis that was not set off by workers, but by bankers and traders, most of which had been the lucky winners of the global governments’ bailout lottery.
You know what? I’m not a fan of unions, but unions are right on this point. It is not right that people lower on the food chain, through taxation, end up financing economic stimuli around the globe. Workers of heavily indebted governments should not pay the price for the financial gamble that happened in financial markets. I agree that it should be the banks bearing most of the cost and responsibility for massive government interference with the global economy. Instead, unions and indebted governments are pleading to reschedule debt repayment, arguing that the burden would be too huge and potentially could trigger another plunge into recession. Not a peep is coming from the banks.
The only problem is that sovereign debt and the associated risks are not going anywhere. This much debt has to be paid and, if repayment is not enforced, impacted governments will have little incentive not to take the path of least resistance and simply ignore repayment.
Ours does not appear to be a fair world in the wake of the crash of 2008. It seems that those most responsible for the fiasco will be able to get away scot-free. Those who believed their bankers and governments that things were just peachy, who have borrowed money and thought they were wealthy, now are facing entirely different realities and are left picking up the tab. Whether EU taxpayers can or cannot pick up the tab is not something bothering government-propped-up bailout recipients — financial institutions — too much.
To add injury to insult, there is really no way around sovereign debt other than through adopting severe austerity measures. All the protesting in the world will not change that. That is why I find Basel III so disappointing (I wrote about it just last week). The Basel Committee had an opportunity to force banks to take responsibility and put their money where their mouth is. Instead, the double standard prevailed, hurting the most vulnerable and rewarding the guiltiest.