ECONOMY

Europe in Thirteen Months

Chicago Tribune

It’s going to take lots of rescue money to pay down Europe’s huge government debts and recapitalize tapped-out banks. The debt crisis requires hard decisions—now—about austerity programs.

An ECB bond-buying program is in place, but Spain’s leaders have resisted a bailout because of austerity measures that come with the aid. Greece is also resisting, but without the money, it will run out of cash in mid-November.

Imposing budget cuts and tax hikes in exchange for bailouts does create hardship for everyday people. For a deeply indebted nation to start living within its means, however, there is no substitute for austerity.

Earlier this year, Cyprus sought financial aid from the Troika. It reportedly urged Cyprus to cut the government payroll by 15%, shave 10% off welfare benefits and roll back government housing subsidies. Cost-of-living allowances and other automatic pay raises need to go. So does the 13th month of pay.

Cypriot public workers typically receive an extra month's salary as a year-end bonus, a phenomenon that isn’t unique to Cyprus. But there, as in the rest of southern Europe, something's got to give.

The Cyprian president was incredulous at the prospect of cutting the bonus in exchange for a bailout. “You cannot tell someone they won't receive a 13th salary,” he said. The same goes for cost-of-living allowances, he said. Cyprus reportedly wants to take longer to implement austerity and cut much less than the Troika prescribes.

But the overspending has to stop. Cyprus needs a bailout to keep from defaulting on its debts and leaving the euro, which would destroy what's left of the Cypriot economy. If it keeps the 13th month, it will have to cut elsewhere.

The same goes for other European nations. Instead of stalling, they should make the necessary changes now. It is the only way the Eurozone to survive the crisis intact, reinforced and better integrated.

source: chicagotribune