Sequestration was never supposed to happen. Instead, the threat of automatic cuts were meant to force squabbling Democrats and Republicans to reach an agreement on how to reduce the federal deficit in a reasonable way. Of course, Congress being Congress, no agreement was reached, mostly due to disagreements over government spending. In the minds of many American conservatives, Europe has come to represent rampant government spending. Remember when Mitt Romney accused a soon-to-be-reelcted President Obama of wanting to make the U.S. a "European-style welfare state"? Mitt would probably call Europe a classic case of an entitlement society "substituting ambition for envy" and stifling economic growth.
Following the global financial crisis of 2008, some European countries' economies have stopped growing entirely and have experienced unemployment levels that rival those of the Great Depression. Spain's unemployment level is now a startling 27.2 percent, giving conservatives the opportunity for a juicy "told you so."
What they might not realize, though, is that the dominant response of European policy makers to the '08 recession has not matched American conservatives’ idea of a "European-style welfare state." Led by German chancellor Angela Merkel, European leaders have advocated for the tough medicine of austere spending cuts. For Southern European nations facing default on their national debts, emergency bailout loans from the euro zone have been closely tied to austerity measures. A recent example was the EU's approval a $3.7 billion emergency loan to Greece after the Greek Parliament ratified a plan to lay off lay off 15,000 civil servants.
As European economies have continued to sputter, austerity measures have begun to face public backlash. Last week on May 1, international Labor Day, protesters organized rallies against austerity measures in cities across Europe, including in Paris and Madrid. In Greece, the country’s labor unions led a nationwide walkout to protest a combination of spending cuts and tax increases that have contributed to an astounding 60 percent unemployment rate among Greeks under 25 years old.
Some European politicians have begun to react to the outcry. On April 27, Spanish prime minister Mariano Rajoy, who in the past has supported austerity measures, rejected an EU target for reducing Spain’s deficit. Merkel has complained that the term "austerity" "really sounds like something completely evil." At a February meeting in Brussels, EU members avoided austerity and instead used the euphemistic phrase "fiscal consolidation" to describe their policy plans.
An academic debate has also cast doubt on austerity policies in the United States. Many European politicians had in the past cited a paper by Harvard economists Carmen Reinhart and Kenneth Rogoff to justify calls for reducing government debt. Reinhart and Rogoff’s paper examines historical economic data and concludes that when sovereign debt levels have exceeded 90 percent, countries have fallen into protracted periods of slow growth.
This result has been called into question, though, by an unlikely source: a grad student. Thomas Herdon, a PhD candidate in economics at University of Massachusetts Amherst, found that Reinhard and Rogoff’s paper had selectively excluded some data in what Herdon thinks was an attempt to shape the evidence to fit a predetermined conclusion.
So what do Europe’s experiences with austerity have to do with the fear-inducing "sequestration" cuts in the U.S.?
For starters, the U.S. economy is doing far better than European ones. Though the American recovery has been slow, the private sector has begun to bounce back. Last week’s jobs report showed that U.S. unemployment dropped to 7.5 percent, the lowest it has been since the recession. In making a comparison with Europe, liberals will likely explain American success by emphasizing the moderate fiscal expansion Obama enacted after the recession and by pointing out that spending cuts in the U.S. have been less severe than in Europe. Conservatives can counter by attributing the U.S. recovery to the fact that American debt was at lower levels to begin with, and that U.S. welfare spending is not as extensive. Another important question is whether a direct comparison should even be made between parts of the world with very different demographic pressures and natural resource endowments. Regardless, the experiences of European austerity can lend valuable perspective to the debate over American sequestration.