A few points on the Greek austerity package that passed today. One is that this is a real austerity package seriously designed to reduce the Greek budget deficit. That means, yes, cutbacks in government spending. But it also means big tax increases. That’s because when you’re genuinely seized with terror about the need to reduce the deficit, you need both more revenue and less spending. The proposals being floated by congressional Republicans for spending cuts plus extensions of the Bush tax cuts aren’t austerity programs, they’re programs to make tax cuts for the rich affordable by reducing spending.
A related point is that sensible and self-interested politicians don’t normally vote for a giant package of spending cuts and tax hikes. That’s unpopular stuff. The Greeks were being forced into it by powerful forces. Financial markets are charging exorbitant rates for Greek borrowing. There’s no way they can pay what they owe absent a bailout. And the only way to get the bailout is to agree to austerity. They had a gun to their head. The only alternative to austerity would be a default that would lead to bank runs, the collapse of the Greek financial system, Greece’s humiliating ejection from the euro, and years of semi-isolation from global financial markets. Even more astounding, notwithstanding all of the above there’s a very credible argument that Greece’s politicians are doing the wrong thing here and choosing respectability for themselves amongst the global elite over the real objectives of its population.
Now compare all this to the United States. Interest rates are not only not spiking, they’re at historic lows. There’s no need for congress to enact an unpopular mix of spending cuts and tax hikes. If Republicans don’t want to increase revenue and Democrats don’t want to gut entitlement programs, then there’s excellent news since for now there’s no need to do either. Just raise the debt ceiling and we can move on.