Europe makes cuts

During the German European Union presidency in 2007, EU finance ministers promised one another that budgets in Europe would soon be balanced.

These plans have all been forgotten. The current crisis requires truly drastic action. And it means the governments are now all performing u-turns. Only a couple of years ago, they were spending money to fight the economic crisis; now the EU leaders are scrambling to work out new ways to cleanse Europe of its debt.

The common strategy is to cut spending. The overwhelming deficits facing the whole of Europe, whether in the eurozone or outside it, it seems, render no other choice.

'The largest debt crisis in history'

Austria's finance minister Josef Proell sees Europe at the start of an Olympic challenge.

"This crisis we presently find ourselves in is the largest Europe has ever faced. Irresponsible spending of public funds - living today as if there were no tomorrow - has led in some cases essentially to collapse. We Europeans have no choices left; we have to make significant changes to restructure our economic system." Proell's Austria, meanwhile, has faired relatively well with regard to its deficit and will face only light cuts.

It's a different story in Latvia and Ireland. Both governments have radically cut the earnings of government officials. At the moment, Latvia, which is not part of the eurozone, is surviving only thanks to loans from the EU and International Monetary Fund. The country is officially out of recession, but just barely, with unemployment remaining around 19 percent.

Ireland, meanwhile, has implemented new taxes and raised the age of retirement, which has led to widespread public outcry.

Salaries slashed in Greece

The response to the measures in Ireland and Latvia, however, has been mild compared to Greece. The riots in Athens at the beginning of May resulted in the deaths of three people.

Earlier, President George Papandreou had announced rigid austerity measures that were the conditions of a huge loan offered by the other eurozone states and the International Monetary Fund. Greece is looking to raise 30 billion euros over the next three years with a 23 percent sales tax.

In a speech to parliament, Papandreou said there was no alternative: "While we consider these measures, other states in Europe are considering whether to save us Greeks from going bankrupt. We absolutely have to show a sign of conviction."

Spain approaching the precipice

In Spain, public sector employees and retirees will have to shoulder the brunt of planned austerity measures. Prime Minister Jose Zapatero, whose socialist government is at a tipping point, is looking to save 50 billion euros over the next four years: "The cuts are necessary to reduce our deficit and re-establish trust among other nations in the Spanish economy," Zapatero said in a government statement.

Spanish banks, burdened by toxic real-estate credit, are also faced with the prospect of collapse, which will pose another challenge to the government that will most likely have to bail them out.

Spain's two main unions, meanwhile, are planning a general strike to protest the government's austerity plans. This would be the first official work stoppage in Spain since 2002.

France against severe cuts

Up to this point, French President Nicolas Sarkozy has been hesitant to announce any major government spending cuts. He is looking to initiate a reform of the country's retirement system, which led to massive protests in the capital Paris.

France's deficit is nowhere near as large as that of Spain or Greece, and Sarkozy is careful not to stamp out the "little flower of stimulus" his economy has seen recently, a concern which is incidentally shared by economists and market analysts in France.

France is thus looking to implement cuts to reduce its deficit, but only if stimulus measures can be upheld. This condition has been met with reservations in Brussels and also Berlin, with German Chancellor Angela Merkel annoyed at France's weak response to the eurozone debt crisis.

Merkel herself announced an austerity plan last month looking to save 80 billion euros over the next four years, telling parliament: "EU member states cannot and must not forget their duty to balance their budgets. This is pivotal for the future of Europe and cannot be stressed enough."

Queen tightens British budget belt

Arguably, the grandest announcement of austerity measures in Europe was made by the conservative government in Great Britain. In a traditional ceremony of pomp and circumstance, the English Queen entered British parliament at the end of May to make her bitter announcement, which had been written out for her by the new prime minister, David Cameron.

“The first priority is to reduce the deficit and restore economic growth. Dealing with the deficit and continuing to ensure the economic recovery is the most urgent issue facing Britain. We must tackle the deficit to restore confidence in our economy and support the recovery."

Britain is the largest economy outside the eurozone, and so Cameron has a bit more leeway than the other big governments. He's first looking to implement rather mild cuts, altogether around seven million euros. Doubts remain whether that will be sufficient to reduce Britain's deficit. The discussion of austerity measures had been long postponed due to campaigning for the general election.

Hungary looking to lower taxes

In a seemingly paradoxical move, the government of Hungary, also not in the eurozone, under Prime Minister Victor Orban is looking to lower taxes as part of its austerity plan. Orban says this will create jobs, something the country needs desperately with its unemployment rising well over 11 percent last year. Experts have expressed doubt regarding Orban's plan.

At the same time, however, the government plans to cut salaries of government officials by 15 percent. This comes as Budapest is already dependent on loans from the International Monetary Fund to avoid plunging into bankruptcy.

Thursday summit to focus on euro debt

The remaining countries have relatively stable deficits, though all 16 eurozone countries are above the EU's limit of three percent of GDP. As a result, austerity measures in the remaining eurozone countries are comparatively light.

Despite all efforts to rein in public deficits, however, the total amount of debt in the eurozone looks to exceed 90 percent of the monetary union's GDP, according to European Commission prognoses. According to the new Lisbon Treaty, 60 percent is allowed.

Leaders of eurozone countries and all other EU member states are meeting in Brussels this Thursday to address the mounting problem of debt in Europe. Statements heading into the summit said efforts would be made to establish a cross-border economic government to prevent the recurrence of financial crises in the bloc.

Author: Bernd Riegert (glb)
Editor: Michael Lawton