The spending cuts and tax increases that will occur at the beginning of 2013 — the so-called “fiscal cliff” brought about by Congress’ deal to raise the debt ceiling last year — would cause more budgetary contraction than the austerity measures used to address debt crises across Europe.
The cliff would cause deficit reduction that totals 5.1 percent of gross domestic product, making the fiscal cliff a bigger package of austerity measures than those that have occurred in Europe as Quartz’ Tim Fernholz reports:
Absent new action, next year the US government’s budget footprint will contract more rapidly than those of Greece, the United Kingdom, Spain and Italy, all countries where post-crisis austerity measures sent protestors into the streets and growth plunging.
Across Europe, fiscal contraction caused by austerity has pushed unemployment to record levels, plunged multiple countries into double-dip recessions (perhaps even depressions), and caused cuts to social programs that have sent protesters rioting into the streets.
Many of those austerity packages have been instituted as a condition for bailouts or financial aid. Similarly, Mexico, Brazil, and Russia have instituted austerity measures in the past as a condition of bailouts and assistance from the International Monetary Fund.
In the United States, where borrowing costs are at historic lows, none of that is the case. The IMF is urging Congress to avert the cliff. The U.S. is hardly facing a debt crisis. And the economy is steadily recovering, however slowly. There is ample evidence that the American tack toward economic stimulus bested the European emphasis on austerity, and that Republican-led spending cuts have already held back economic growth at the state and national level. And yet, the fiscal cliff, a result of GOP insistence on taking the government to the brink of default in 2011, could cause even more unnecessary pain.