The austerity program in Europe doesn’t seem to be working all that well. Restructure your debt, and live within your means by immediately and drastically cutting government expenditures, sounded like good common sense advice, and certainly something had to be done. Bureaucracies in the so called PIIGS nations (Portugal, Italy, Ireland, Greece, Spain) were bloated and inefficient. Guaranteed social benefits were overly generous and unfunded. Deficit spending and national debt had climbed to unsustainable levels. Banks were under capitalized. What a mess!
What appeared to be the common sense solution just is not working. As it turns out, Keynes was right, you cannot financially starve a country into prosperity. All it produces is a deepening recession accompanied by very unhappy citizens verging on riot and revolution. Add some strong arm tactics to put down civil unrest and it’s a path toward authoritarian rule.
So what might work? How about focussing on reforms of a more prosaic nature? Some of these countries, Greece and Italy especially, are well known for massive tax evasion by just about everyone. The very rich report only a fraction of their income. Lower classes don’t report at all. Shops collect the VAT on every sale, but forward only a portion, or none, to the state. It’s hard to run even a slimmed down government under circumstances like that. Honest enforcement of the tax laws might produce enormous revenues for the state without jeopardizing anyone’s well being.
What about reducing bureaucracies through attrition while enforcing simple rules promoting efficiency and punishing bribery? It would require a change in organizational culture, but, I suspect, a welcome one.
What about phased in changes to working hours, retirement ages, and paid leave benefits in ways that would enable ordinary families to prepare and adjust without feeling like they have had it shoved down their throats?
Instead of shutting down public expenditures altogether, what about a carefully designed plan of additional investment in appropriate infrastructure, both physical and social?
It would still require a massive restructuring of debt, and, perhaps, Greece at least would still find its way out of the Euro and back to the Drachma. It would not be a quick fix, but it might stave off a European wide depression while setting the groundwork for long term economic recovery.
To me, that’s common sense.