On May 27, the Spanish Parliament passed an $18 Billion austerity package by a single vote. This just demonstrates how unwilling politicians and citizens in the Euro zone are to tighten their belts and atone for years of burgeoning debt (general strikes are planned for June 8th to protest these “draconian” measures). When such measures will be required in the US remains to be seen at the Federal level, but we’re already seeing many municipalities making tough decisions to cut jobs and services, so it may be just around the corner. It’s worth considering how we all got here though. It could easily be summed up as years of public servants living off the public largess, but it runs deeper than that of course. Wars, socialized medicine, a financial crisis and other factors come to mind, but the reality at this point is cuts are needed before markets lose all faith in the ability of many established countries to repay their debt – so the answer is austerity measures.
Some of these austerity measures will surely make you laugh no doubt, because it begs the question as to how they got here to begin with. Here are a few from each country that has announced major reforms:
Spain Austerity – 15 Billion Euros
- Cuts in civil servants pay of 5% or more
- Pay freezes in 2011 (post-cut)
- Changes in regulations on the banking sector
- Suspension of automatic inflation-adjusted pensions
* My Favorite One: No more payouts to parents for the birth of new children
Greece Austerity – 30 Billion Euros
- Pay freeze for all public sector workers
- Some public contract worker jobs will be eliminated
- In the private sector, now companies may lay off up to 4% of their employees, up from a previous restriction of 2% of employees.
- Changes in pensions including life expectancy calculations and basing pension on average salary rather than final year of pay (many US cities and states allow workers to game this and then can’t afford new teachers, firefighters and police to fund these obscene pensions).
- VAT is increasing from 21% to 23%
- Tax evasion will no longer be a national pastime (this runs rampant in Greece, possibly the worst in all of Europe). The tax authority will be more aggressive in collecting taxes.
* My favorite: public workers will no longer get their 13th and 14th month salary bonuses. That’s right; now they’ll only be paid for 12 months…every 12 months, like the rest of the world.
Italy Austerity – 24 Billion Euros
- Hiring freezes in the public sector
- Freezing salaries in the public sector,
- Delayed Retirement age
- Cuts in funding to local governments
- 5% pay cuts for senior public sector staff and politicians
- Increasing the VAT
- Income tax and profits tax of 2.5%
- Freeze in public spending over the next 3 years
- France will not replace 1 in every 2 retiring civil servants
- Raise the retirement age from the current 60 to 61 or 62 — (these reforms were actually underway well before the current EU crisis)
Does the US Need its own austerity measures?