What austerity looks like
We have written several times about the issues with Eurozone country debts and how certain countries are struggling with heavy debt issues, low economic activity and high unemployment. Greece in particular has stolen the headlines as of late. Last week Greece was forced to get serious about cutting spending and increasing revenue.
Here is what austerity looks like for citizens of Greece (via CNBC.com):
Taxes will increase by 2.32 billion euros this year. This number will increase each of the next two years as well. Property taxes will increase as will the value added tax, which is code for a national sales tax from 19 percent to 23 percent.
Excise taxes on fuel will increase by a third and sin taxes on cigarettes and alcohol will increase by a third as well.
Public sector pay will be cut by 15 percent and defense spending will be cut by 200 million euros in 2012 and 333 million euros in 2013, 2014 and 2015.
Education spending will be cut by closing or merging 1,976 schools.
Only one in 10 civil servants who retire this year will be replaced.
Health spending will be slashed by 310 million euros this year and 1.81 billion from 2012 to 2015.
Greece's social security program will be cut by 1.09 billion euros in 2012 peaking at cuts in 2012 of 1.28 billion and ending with a 700 million euro cut in 2015. Added to this is increasing the statutory retirement age from 61 to 65.
Greece will also start to privatize a number of its government owned enterprises over the next few years.
Greece has had to make many tough choices over the last few weeks. By no means is this the end of their crisis. This simply gets them to a position where the international community will start to provide their country another tranche of rescue financing.
Of course the U.S. is facing similar issues as the self-proclaimed "debt crisis" is upon our fine nation with a drop-dead date of Aug. 2. The United States has long held to the stance of simple kicking the can down the road on our debt problem. Politicians seem to be more concerned with keeping their jobs in Washington than tackling the single largest issue facing the U.S.
The goal right now is to allow for the debt ceiling to be raised by 2 trillion dollars. That will allow for talks about debt reduction to be kicked down the road until after the next round of elections in 2012.
All the talk lately has been about corporate taxes and revoking tax breaks for oil companies. Most are dealing with billions of dollars not the necessary trillions that need to be addressed. Much like Greece, the United States' major issue lies with its entitlement programs. The question really is how will our lawmakers end up dealing with the looming debt crisis? Both camps in this battle feel their way is correct. One wants to simply increase revenue without decreasing spending. The other wants to implement cuts to the annual budget that will not only eliminate the annual deficit but also pay down the national debt.
If an agreement is not reached, we put ourselves on a course that mirrors what Greece has voted to implement. Unfortunately, the measures will need to be much broader and deeper than Greece. Either way, changes need to be made. Now we know what austerity looks like.
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