For those of you who don’t know it (and I don’t know why you would), your humble scribe with the Italian last name is also half German, some great, great, … great grandparents having come to Pennsylvania Dutch country from Baden Baden sometime in the early 1800s, or so I’m told. As such, austerity is not an unfamiliar concept and, according to this reportin Spiegel Online, the rest of Europe is getting more familiar with that word today.
German Government Agrees on Historic Austerity Program
The German government put together the largest austerity package since World War II on Monday, with spending cuts and new business levies aimed at saving 80 billion euros by 2014. Chancellor Angela Merkel says Germany, as Europe’s largest economy, must set an example.
The German government on Monday announced plans to reduce spending by €80 billion ($95.7 billion) by 2014 in the largest package of cuts since World War II. The austerity program aims at reducing the budget deficit and helping to protect the euro as it continues its slide.
“We have to save €80 billion by 2014 to put our financial future back on a solid footing,” Merkel told a press conference on Monday afternoon. She said the budget cuts for Germany, Europe’s largest economy, were a “unique show of strength” that signalled her government’s commitment to tackling the European debt problems that have plunged the euro single currency into crisis.
Of course, others in Europe are probably calling it something quite different while, here in the U.S., Keynesian economists are probably just shaking their heads again, muttering something about how “the Germans just don’t get it”.
Right or wrong – whether this plunges the whole world into a deflationary abyss from which there is no escape or if, somehow, this has the desired effect of restoring financial stability over time – it’s nice to see that there are at least a few elected officials in the world who question the idea of simply piling on more debt to cure the world’s economic ills.
“Germany as the largest economy has a duty to set a good example,” she said. A number of European nations have fashioned similar austerity programs, with Spain passing sharp cuts last week and Greece having pushed through far-reaching emergency savings measures earlier this year in a last ditch attempt to avoid bankruptcy.
The government plans to cut social spending in such areas as jobless benefits and will also shed many civil service jobs. There will be no reductions in government spending on education and research and no increases in income or value-added-tax, Merkel said.
Business subsidies, however, will be reduced and a new levy will be imposed on air traffic. Power companies will be charged a new nuclear fuel rod tax and there will also be a financial markets tax. The government also plans to save money through a comprehensive reform of the German army, the Bundeswehr, though conscription is to continue, despite musings to the contrary by German Defense Minister Karl Theodor zu Guttenberg.
Merkel said there was no alternative to drastic savings. “These are serious and difficult times,” she said. “We can’t afford everything we would like if we want to be able to shape our future.“The government has to make radical budget savings to meet its commitments to reduce the budget deficit. The Stability Pact governing Europe’s monetary union calls for Berlin to reduce the deficit from its current level of 5 percent of GDP to below the 3 percent ceiling by 2013.ty, the euro fell again against the dollar over the weekend and was trading on Monday below $1.20.
Angela Merkel even looks a little bit like my late grandmother.
There’s a pretty neat graphic that goes along with this story, one that has projections for national debt going in a direction that is surely quite unfamiliar to American readers.