Speaking at the World Economic Forum in Davos, Switzerland
on January 25, 2013, Mario Draghi, president of the European Central Bank, said
the bank’s program to buy the bonds of heavily indebted E.U. states had been
“very helpful” in reducing the perception that the euro was on the verge of
collapse. He also pointed to the structural reforms enacted by European leaders
as “now bearing fruit.” He urged the state governments of the heavily-indebted
states to continue to implement structural reforms so those states could take
advantage of the ECB’s low interest rates and easy credit to banks. That is to
say, the strategy was to use monetary policy as leverage for long-term-oriented
fiscal policy. Political risk analysts listening to the central bank official
likely came away with a more optimistic stance on the European economy.
Even though the progress achieved already on the debt crisis
provides “light at the end of the tunnel,” the matter of structural reforms at
the state level could prove to be more uncertain, given the political element.
Chancellor Angela Merkel of the state of Germany warned against the impulse to
reduce the pace of structural reform in the face of economic stagnation in the
heavily indebted states. She pointed to the record unemployment numbers
announced in Spain just the day before as fodder for the anti-austerity crowd
there. On the political side, she observed, “experience tells us that often
pressure is required to enable structural reform.” The obstacles could come
from entrenched political officials or bureaucrats at the state level, as well
as from the poor whose very sustenance can be put at risk by the austerity in
structural reforms. I contend that whereas the former source ought to be
combatted, even the austerity advocates ought to see to it that the poorest of
the poor do not slide through the cracks.
In other words, survival in the short run should not be
sacrificed for long-term structural reform. In fact, making a qualitative
(i.e., difference in kind) distinction between government programs that keep
people alive on a daily basis and all the other budget items could actually
permit more budget cutting because so
much would be found to be subject to cuts without risking lives. To be sure,
unemployment caused by a cancelled defense contract could put people in danger
of losing their house or going without food. However, such individuals would be
covered by the continuance of the programs providing sustenance. Therefore,
having an indirect effect on
sustenance does not render a particular budget item itself in the category of
vital programs. Buffering sustenance
programs from the massive cuts everywhere else would significantly reduce the
vehemence of the protests and soothe the path of structural reform by isolating
the entrenched officials and bureaucrats as the only primary obstructionists.
In short, long-term fiscal reform need not be at the expense
of people eating and having shelter as well as medical care. Based on the firm
foundation of human rights, programs primarily geared to sustenance can be
isolated and protected such that the structural reform can be implemented more
smoothly. Put another way, the European leaders have been making their task
much more difficult than necessary.
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