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| Europe |
| Escaping The PIIGS |
| 2010-05-14 |
| This week Spain decided it wasn't going to be the next Greece. It launched tough fiscal measures, and pitched "green" programs and public union raises over the side. Seems there are some lessons here. Spain, a latecomer to democracy and the welfare state, has agonized for years about its place on the Continent. Wanting to be a European welfare state, it imitated its neighbors. It spent like they did, but it couldn't match their productive capacity. Instead, it found itself looking like Greece, a country with a stunted private sector and a bloated public sector. Any effort to balance the two was met by union violence in the streets. Spain's spending binge put its deficit at 11.2% of GDP and its 2009 public debt at 50% of GDP, with credit agencies warning that it was headed for 90%. Unemployment stood near 19%. Sovereign ratings agencies downgraded the country's outlook to negative, and market analysts made Spain the "S" of the PIIGS bailout candidates alongside Portugal, Italy, Ireland and Greece. Spain, it turns out, didn't intend to be the next disaster story. Instead of blaming "an Anglo-Saxon conspiracy" as he did in February, Spanish Prime Minister Jose Luis Rodriguez Zapatero came up with something new: the political will to cut back and take the political heat. As Europe fashioned a $1 trillion bailout fund and prepared for the worst, Spain did what no one thought a socialist state could ever do: It cut public-sector workers' salaries 5% and held off their raises for 2011. Pensions were frozen for all but the poorest. Better still, all the big money-wasting "green" and "alternative energy" projects — which a Spanish university study exposed as job killers — were scrapped. That's right, all the global warming measures put in place because of the "emergency" were dumped. Not surprisingly, markets rallied on this amazing show of will, whose message was that Spain is not Greece. It's a heartening story to see a nation on the precipice decide to walk back from the cliff instead of jump. Up until now, socialist states from all over — from Venezuela to Greece — have always resorted to blaming others when the money ran out. Spain's window into Europe and Latin America gave it a better view than most into how many different ways there are for socialist nations to commit suicide. Spain also witnessed real Hispanic success stories in Chile, Peru and Colombia, as well as Brazil; its recent cutback s would not have been unusual in those successful countries. This offers important lessons for Europe, but even more so for the U.S., which has embarked on a spending spree and an expansion of public-employee unions. Zapatero's road ahead is tough, but his cuts show that he has the courage to acknowledge the laws of economics instead of fight them. Our White House hasn't shown the same common sense, at least domestically. But now, at least, there's one example to follow. |
| Posted by:Beavis |