May 11th, 2012
02:42 PM ET

Fareed's Take: Is democracy part of Europe's economic problems?

Editor's Note: Be sure to catch "Fareed Zakaria GPS" on CNN every Sunday at 10 a.m. and 1 p.m. ET.

By Fareed Zakaria, CNN

Everyone is looking at Europe these days as economic and political protests mount across the continent.

The downward spiral has produced a great debate about the virtues of "austerity," the idea that governments with large budget deficits must reduce these deficits -– mainly by cutting spending. If they don't get their budgets in order, so the idea goes, they won't be able to borrow money and will face a fiscal nightmare of ever-rising interest rates.

The problem is that as these governments cut spending in very depressed economies, it has caused growth to slow even further -– you see government workers who have been fired tend to buy fewer goods and services, for example -– and all this means falling tax receipts and thus even bigger deficits.

So, economists like Paul Krugman urge: abandon the austerity program, spend more and get budgets in order once the economy has recovered. The problem, in the mind of Keynesians like Krugman, is that European elites, particularly in Germany, have embraced the wrong economic doctrine.

Now, having been in Europe briefly earlier this week, I don't think Europe's elites -– especially German elites -– have really embraced some alternative view of economics. Most do understand that cutting spending during a recession slows down the economy further.

But here is what motivates them: They don't believe at all that any of the governments in question would ever get their budgets in order once the economy recovered. They believe that many of these countries in trouble have economies that are uncompetitive, hobbled by bad regulatory and tax frameworks and also by large and inefficient governments, with ever-increasing entitlements doled out to their citizens. The crisis provides an opportunity to start wholesale reform. Markets have signaled that they will not lend to these governments unless they take measures to get their houses in order, so this is a golden opportunity to get this reform process going.

Many Germans and northern Europeans I have talked to do seem to understand that, economically, the smart thing to do might be to spend now and to cut later. But many in Europe, especially in Germany, believe that later will never come.

In reality, governments spend in bad times and then spend more in good times. So the disagreement may not really be over economics, but over politics.

This is a sad state of affairs because what many people are worrying about, at root, is whether democracy has become part of the problem. After all, politicians have gotten elected over the last four decades in the West by promising voters more benefits, more pensions and more health care. The question is, can they get elected offering less?

That's what stops many Europeans from abandoning austerity and embracing another round of stimulus spending. And I think these worries are shared by many in the United States as well.

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Topics: Economy • Europe • Fareed's Take • Politics

soundoff (465 Responses)
  1. lweba

    And as Shakespeare would have said, 'National Economics and Politics are strange bed fellows'.

    October 24, 2012 at 2:42 pm | Reply
  2. ruth

    You can not blame FDR,what WAS suppose to be very good for the elderly and the the very poor,remember we have not had this many people on welfare, ssi ,food stamps and every other free thing this president is giving away. People are not poor ,they have plasma tv's ,cars,they buy cigarettes,they have 5 ,6,7,8, children they neither support or take care of .Black or White makes no difference.In the sixties no one had no more children than they could afford to take care of.I can not remember in the 60"s going to school where parents had more children than they could take care of. Parents were married,they worked at any job ,they made do with what they had,they did not go on vacations if they could not afford it,they made house payments,their furniture lasted a lifetime,so did their appliances.They did not live rich and they did not have credit cards.This is now a soft generation,they want immediate satisfaction no matter what it is they want, and they went into debt themselves,no one twisted their arms to buy a house they couldnot afford....and if people keep buying this crap from China they deserve what they get.There was 6% of people on welfare in the 60"s.this is a 3rd generation of welfare,and 22 year old kids on ssi and living on medical marijuana.This is made mostly of people that do not want to work, will not take a job that is beneath them ,my God this generation does not even cook,they eat out.I can go on the main street of my town and all the restaurants are full.I must be the only person alive that still cans ,grows our own vegetables and cooks every day.grow up America

    October 25, 2012 at 7:44 pm | Reply
  3. tremain2004

    Public workers are a drain, produce nothing
    Private workers can support only so many deadbeats

    Public workers are masters of consumpsen

    Pittiful production

    The workers cannot support so many parisites

    Parisites with high wages and fantastic retirements that no private worker gets

    So no, the democracy of voting yourself money does not work

    It brings everyone down

    October 29, 2012 at 1:48 am | Reply
  4. Joao

    I'm pleased that even an individual that looks out for the "greater good" (Fareed Zakaria) can see the sense in limiting democracy to budgets and consumption-based taxes.

    I would like to save for my family, not the government.

    October 30, 2012 at 5:17 pm | Reply
  5. nodoubt

    yes,they have no idea what it is.

    October 31, 2012 at 7:04 am | Reply
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