Editorial: Act now to avoid Europe's fiscal woes

  • Updated: May 10, 2012 - 6:06 AM

U.S. leaders should take a close look at election results abroad.

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Euro sculpture at the European Central Bank in Frankfurt, Germany.

Photo: Michael Probst, Associated Press

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Recent election results in France, Greece and Germany reflected a rejection not only of incumbents, but also of the austerity measures backed by losing candidates. The resulting economic and political upheaval means even more uncertainty for beleaguered euro zone countries and offers a cautionary tale for U.S. policymakers.

The most significant shift happened in France, which chose its first socialist president since Francois Mitterrand when Francois Hollande beat incumbent Nicolas Sarkozy.

Upcoming parliamentary elections will test the scope of France's switch from Sarkozy's emphasis on austerity. But even if Hollande gains a governing majority, fiscal realities will make it very difficult for him to deliver on campaign promises of less austerity and more progrowth stimulus spending.

In Greece, ground zero for the euro crisis, parliamentary elections elevated extremes on the political left and right. The Coalition of the Radical Left, called Syriza, won 16 percent of the vote, and the far-right Golden Dawn Party, whose adherents use Nazi salutes at rallies, won 6.8 percent. Divided on most issues, they're united in rejecting the terms of the bailout European countries put together to keep Greece from defaulting on debt of Olympian proportions.

The governing parties responsible for negotiating those terms showed sharp declines. So far, no party has been able to cobble a coalition together, so new elections may need to take place. The paralysis increases the likelihood that Greece will eventually exit the euro zone.

Germany, the country that's bankrolling much of the Greek bailout, saw an anti-incumbent election as well, as a vote in its northernmost state resulted in gains for the Social Democratic Party at the expense of the governing coalition of Christian Democrats and Free Democrats.

Every election, everywhere, is decided by a complex set of policy, political and personal factors. France, for instance, rejected Sarkozy's style as much as his substance. But it's clear that austerity-only measures are reducing consumer and business confidence instead of increasing it, and a midcourse correction toward a more balanced approach is imperative.

And while the success of fringe parties in Greece may be more of a case of rejecting the fiscal straightjacket its citizens feel trapped in, its election results are a reminder that severe budget cuts, unemployment and hopelessness can give rise to extremists.

The United States has more -- but not much -- leeway in its fiscal system than most European countries. But our political system seems as sclerotic and prone to sharp shifts from "wave" elections.

It's not too late for leaders in Washington to end the political paralysis and work toward some version of a long-discussed grand bargain regarding entitlement, tax and spending reforms. President Obama missed a golden opportunity -- one that he created -- when he didn't seize upon the recommendations of the Simpson-Bowles commission.

House Speaker John Boehner similarly has not shown a willingness to confront fiscal realities, nor the rigid ideologies of his Republican caucus. Instead, tax rates dictate every element of his proposals. And Senate Majority Leader Harry Reid and other leading Democrats have to move more aggressively on reforming entitlement programs that will soon swamp the country.

The conventional Washington wisdom is that nothing will, or should, be done before November's election. That shouldn't be the case. As we recently learned from the elections in Europe, elections aren't always clarifying events: In fact, they often create their own kind of chaos.

  • TWO VIEWS


    "We're in a much better position. However, in the long term, some of the same structural problems of very high debt, an aging population and high health care costs affect both the U.S. and Europe. But the U.S. has more space."


    -Kemal Dervis, director, Global Economy and Development at the Brookings Institution


    • • •

    "America has an opportunity to avoid going off the cliff. Europe has already jumped over it."


    -Nile Gardiner, director, Margaret Thatcher Center for Freedom at the Heritage Foundation

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