Deep cuts, and soon

"Europe has been saved, but its citizens will have to dig deep": in the wake of the European Commission's verdict on the austerity packages adopted by a dozen member states which will result in savings in 300 billion euros, Rczespospolita reports from Brussels, where discussion of austerity measures is on the agenda for the European Council Summit on 17 June.

"The shock of the prospect of Greek default has encouraged financially sound member states to push through cut-backs," reports the Polish daily, which points out that most of the measures will focus on reducing public sector spending. However, the worry is that the new era of austerity will "result in more social unrest and waves of protest." With an austerity package to be announced on 22 June, the next country to be affected will be the United Kingdom, where the Financial Times warns that the budget cuts will be in the order of 20%, probably more than the Labour government's proposals, but which will certainly be implemented sooner.

Spain tops the list of the countries that will have to suffer the most. According to a front-page report in[El País](http:// http://www.elpais.com/articulo/portada/Bruselas/exige/Espana/concrete/ajuste/19000/millones/2011/elpepipor/20100616elpepieco_1/Tes/), "Brussels wants a further reduction of eight billion euros by 2011," which will add to the 11 billion euros in cuts that have already been planned. Along with major reductions in spending, Brussels is also insisting on the immediate reform of the country's pension system and labour market regulations, which will be announced on 16 June. But as[El País](http:// http://www.elpais.com/articulo/opinion/Todavia/suficiente/elpepiopi/20100616elpepiopi_1/Tes/) remarks, all the pain "still won't be enough." At the same time, the daily notes that the Commission took the initiative deny rumours of a Spanish bailout "which made a splash in the German media on Monday." For rival daily El Mundo, "the question is: does Spain want to stay in the Euro?" At the same time, the Madrid based newspaper voices its support for the government: "even though he was slow to react, Zapatero has taken the right decision. In adopting policies advocated by larger countries, he is applying measures that could take us through the crisis and avoid more serious difficulties which would have occurred if we had been forced to request a bailout." In neighbouring Portugal, “the new austerity measures announced by Lisbon will not be sufficient to achieve the budget deficit target that has been set for 2011,” notesPúblico. According to the European Commission, the country will still have to find and additional 2.5 billion euros.

In spite of the efforts that have been made — a plan to cut spending by 100 billion euros over the next three years, which will include a highly controversial move to increase retirement age from 60 to 62 years – the Commission "believes that French fiscal adjustment has yet to meet the criteria established by Paris in consultation with European finance ministers," reports Le Monde. "The other 11 countries examined in the report are in a similar situation," notesLe Figaro, which further adds, that in view of the gloomy outlook for growth, Brussels has avoided making waves," because the crisis requires "the simultaneous application of cutbacks and measures to promote growth — a strategy that amounts to squaring the circle."

In contrast, La Stampa hails the measures imposed by the Italian government, which have obtained a seal of approval from Brussels, even if they have angered the country's regional governments, which believe that they have been forced to carry most of the burden. The Turin daily also notes that Italy may opt to make use of its veto at the 17 June European Council summit if its concept of debt is ruled to be inadmissible. Statistics produced in Rome include both public and private debt, as opposed to those produced in Berlin, "which only take into account public debt." In the Czech Republic, Hospodářské noviny notes that the Commission has also described as "satisfactory" the package of measures adopted by Jan Fischer's interim government. At the same time, Rczespospolita remarks that while half of the EU's member states have presented austerity packages, there has been no such initiative in Poland, which remains the largest country that has yet to bite the bullet. However, the newspaper adds that there will be no avoiding the inevitable in Warsaw, where an increase in retirement age and the reform of the farmers' social insurance system are on the agenda.

As to the impact of the cutbacks, Die Zeit remarks that "tighter control of national budgets does not amount to a strategy." The Hamburg based weekly further suggests that Berlin should abandon its guiding economic principle of limiting debt — both its own and other people's. It is a principle that has also been adopted by the EU, "which plans to pillory states with excessive levels of debt. However, let's not forget what it takes to make a debt: a debtor and a creditor," continues Die Zeit, which highlights the role of German exports, and their contribution to the difficulties encountered by Greece and Spain. On this basis, it proposes that the EU should not only sanction countries with high levels of debt, but also those with large trade surpluses. In the same vein, Tagesspiegel suggests that Angela Merkel's government should "do something about domestic consumption" if "it wants to increase the stability of the euro." But as Der Spiegel remarks, rapid growth in domestic consumption is unlikely to happen anytime soon now that Germans are tightening their belts to avoid "a loss in social status" — an observation based on a recent study which has highlighted the erosion of the German middle class. In the year 2000, 66% of Germans were middle class, as opposed to just 60% today.

Opinion

Tyranny of small countries

The Financial Times bemoaned that although "the European Union tyranny of small countries" has served it well, it is counterproductive when it comes to macroeconomics concludes Wolfgang Munchau dans le Financial Times. The columnist argues that small economies can behave as if they have no impact on the rest of the world, but the Eurozone must remember that it is the largest economy in the world. The German "obsession" with austerity seems crazy to many European politicians and economists, yet France appears to be the only nation with a "large-country mindset," criticising such measures as recessionary. Another problem with the small country mindset is that many in Brussels and Frankfurt deny the importance of growth, which they deem to be merely structural. There are two main problems with this current Commission strategy: it is more aimed at competitiveness than growth and there is a lack of macroeconomic coordination between EU countries. Munchau warns that ignoring growth will present huge difficulties for sustainable debt reduction.