"Europeans have lost their appetite for digging deeper holes of debt for the same reason Americans have: because they don't have a choice. As Margaret Thatcher predicted would happen, we have all run out of other people's money. That reality explains a lot more than airy references to Germans' anti-inflationary mass psychology.
"We're at the tail end of the largest economic intervention since World War II, and even on its own narrow, nebulous terms, it has been a colossal failure. The failure is obvious to working people. It's obvious to unemployed people. It's obvious to kindergarteners, to dogs and cats. Only Paul Krugman persists in thinking good things will happen if we just throw more money on the barbecue."
But all across the European Union, countries are discovering that they can no longer afford the massive cost of providing cradle-to-grave government benefits.
•France: The poster-child for euro-socialism is facing a national debt of 1.49 trillion euro, about 77% of its GDP. That doesn't count the unfunded liabilities of the country's state pension system, which may exceed 200% of GDP by themselves. Reforming the French welfare system has long been seen as politically impossible, but the fiscal facts have forced the French government to finally propose an increase in the retirement age. The French government is also selling off government-owned land and other property. And the French health care system has gradually been increasing co-payments and other forms of consumer cost-sharing.
•Germany: Every working person in Germany shoulders 43,000 euro ($53,000) in debt. In response, the German government has announced plans to cut more than 80 billion euro in government spending, nearly 3% of GDP, over the next four years. It has already announced 3 billion euro in cuts in this year's budget, including a reduction in unemployment benefits. The retirement age will be raised from 65 to 67 by 2029. Government universities, previously free, have begun charging tuition.
•Great Britain: England's national debt is a staggering 90,000 pounds ($133,000) per household. The new government of Conservative Prime Minister David Cameron has already announced more than 6 billion pounds in budget cuts. It plans to raise the retirement age under its Social Security system and abolish payments to parents of newborn children. The government also aims to implement U.S.-style welfare reform, including a work requirement for those receiving benefits.
•Italy: Even the notoriously dysfunctional Italian government has been forced to come to terms with a national debt larger than its entire GDP. Prime Minister Silvio Berlusconi has proposed more than 30 billion euro in budget cuts over the next two years, including a billion-euro cut to its national health care system, and a crackdown on fraudulent disability payments. Berlusconi also called for a three-year pay freeze for all government workers.
•Spain: Facing the country's worst economic crisis in decades, Prime Minister Jose Luis Rodiguez-Zapatero has slashed government spending by 15 million euro. Payments to the parents of newborn children were ended, and disability payments cut. The Spanish government also has proposed hiking the retirement age for men from 65 to 67.
An argument that questions the credibility of economists in general is that there are a number of disagreements among many economists, and not all of them can be right at the same time. In the case of Nobel Prize-winning economist Paul Krugman, these disagreements come from Krugman himself, as he holds contradictory opinions on a large number of topics.
For instance, we learn that when deficits are high, interest rates are low. However, we also learn that when governments run up a deficit, interest rates rise. So deficits cause interest rates not only to go up, but also to go down! In 1985, Krugman argued that the higher national debt and spending were bad for people early in their careers, as they would have to pay for it later in life. Nearly twenty-five years later, he argues that the national debt is not a problem, as it never needs to be paid off.