Greece has its debt bail-out, or appears to have, but there’s still that riot-inducing issue of government budget cuts. Is it even feasible for a government to cut its budget by as much as the International Monetary Fund has demanded of Greece? Yes it is very possible -- all too possible, in fact -- according to the IMF’s own study. In the past three decades there have been at least nine instances in which developed nations have cut their structural deficits by at least 10 percent of GDP:I added the bold in the above to highlight Canada.
Ireland (20%, 1978-89)
Sweden (13%, 1993-2000)
Finland (13%, 1993-2000)
Sweden (13%, 1980-87)
Denmark (12%, 1982-86)
Greece (12%, 1989-95)
Israel (11%, 1980-83)
Belgium (11%, 1983-1998)
Canada (10%, 1985-99)
Other writers have noticed this. So while it is most likely painful to make such cuts it has clearly been done before many times. Sweden made the list twice, in fact, and Greece will -- under the current deal -- rack-up its second appearance on the IMF list. And that’s where I maybe see things a little differently from those other writers.
This study proves not just that western governments can make significant budget sacrifices, it shows that they will make such sacrifices -- because they must -- again and again.
Not much, if anything, is being learned from this disaster or the many that preceded it.
I can attest to the pain that Canadians felt as the structural deficit was fixed by the government tightening spending in Canada. A number of social programs were cut (health care took a big hit). But the country came out healthier after the adjustment.
The problem is that interest groups can beg and plead (and bribe) politicians to give them sweetheart deals that are just too good to be true, and sure enough, they bleed the country and they have to be taken back. The US is not immune to this. The lobbyists in the US have milked the American taxpayer again and again. The Day of Reckoning is coming for Americans. They too will show up on the above list in the next few years.