Budget fight - round 2

The US treasury is taking in $100 billion dollars less every month than it spends and the national debt is pushing $16 trillion dollars. Yet President Obama has identified the main enemy of the American people: too little spending!

In his press conference he used the usual strong language that comes natural to him when he backed himself into a corner . Forget compromise and talk about consensus! He told Congress that if they don't raise the debt ceiling by end of February, nurses and firefighters will go unpaid.

What he didn't say is that he could have ensured that it is not nurses and firefighters but the bureaucrats in Washington who go unpaid. Yet this is a president who loves to spend money. More than $900 billion dollars went on bailing out car makers that are now producing too many cars for a vastly shrunken world market. The (second) stimulus which his government pushed through Congress in 2008 did not even make a blip in the unemployment figures for more than three years, yet wiped the triple A rating off the US treasury.

Perhaps we shouldn't be surprised about all this. Apart from his rhetorical skills, Obama had little to offer in the way of executive experience. And he appointed Timothy Geithner to the position of Secretary of State in the Treasury.

Sadly, in the end, the US taxpayer will have to foot the bill for a president who has shown little hesitation to spend money he does not have. As the fate of Gordon Brown has demonstrated, history wont be too kind with politicians who like spending other people's money.

Austerity jeopardised

'The tide of European public opinion is turning’ said John Sopel of the BBC yesterday. Reviewing the results of the French presidential elections from the foot of the Eiffel-Tower, most observers in the BBC studio seemed to think that austerity policies, allegedly championed solely by Angela Merkel and the evil Germans, have fallen out of favour with people across Europe. This of course is also the line the Labour Party in Britain has been pushing for months now: 'Austerity does not work and it is time to change course'. As Andrew Neill pointed out to Ed Balls on the Sunday Politics Show yesterday, neither of the Eds has yet said how much this change of policy would cost the British taxpayer. 

The picture is somewhat clearer in France. Francois Hollande has promised his voters two main changes: to reverse the pension reforms introduced by his predecessor and to employ sixty thousand more teachers. While he, like the British Labour Party, has not said how to pay for these changes, Hollande has suggested that the fiscal pact, signed by all Eurozone countries but not ratified yet, needs to be re-negotiated. 

As the sentiment against austerity gains strength across Europe, there are two main arguments about how to finance any policy change. First up is the suggestion made by the pseudo-communist party Syriza in Greece that ‘the Germans’ should pay’. There seems to be little traction with this sort of argument amongst centre-right or centre-left to simply deposit all debt that Greece and other countries have raked up in the last two decades on the German doorstep. However, the argument draws its persuasive force from a powerful source, that 'the rich should pay for the poor'. 

What the outspoken leader of the assemblage of Greek communists Alexis Tsipras does not say, of course, is that any money transferred from German coffers to pay for Greek debt is hardly a transfer from the rich to the poor. More accurately, it is a transfer from those who work hard and have made the difficult decisions about welfare and public service reforms, to a country where most people consider it a crime to pay taxes. 

The second argument finds its latest manifestation in France, articulated by the president elect Francois Hollande. He wants to finance his programme of growth by taxing the rich and by changing the rules for the European Central Bank (ECB) to allow the bank to issue bonds directly. In effect, it would mean that the French government can borrow money without regard to its credit rating. Noticed the trick? Of course, there is no way any country can borrow above and beyond its means, so what Hollande is suggesting is to allow the ECB to lend money to France with Germany underwriting the debt. Lurking in the background is exactly the same mode of thought as in Greece: the ‘rich’ should pay for the poor. 

What do Hollande and ... have in common? Their arguments are animated by the same denial of government responsibility that has brought so much misery to Europeans already. It is a continuation of the old 'spend spend spend' policies that refuse to acknowledge that there is always somebody who has to pay for the debt. The only difference between Britain and the Eurozone is that in the Eurozone it's the Germans who have to foot the bill, whereas in Britain there is no other government that could pay up for us. 

Where does that leave Europe? It seems closer integration of fiscal and political affairs have not ushered in a new sense of responsibility but a new wave of ‘beggar thy neighbour’ approach. Hopefully, Angela Merkel will resist any moves to water down the rules of the fiscal austerity pact. What France and Greece need are reforms to make its industries more competitive and for its politicians to accept responsibility, not another round of ‘free for all’.