Spain's Prime Minister Mariano Rajoy announced an increase in the country's general sales tax from 18% to 21%, as well as spending reductions that include cutting employment benefits after six months.
The cuts the Spanish government imposed is seeking to curb the country's debt crisis.
While the European Commission welcomed the move, saying it was an "important step" toward Spain meeting its deficit target for the year, Spain's anti-austerity protesters rushed to the streets of Madrid and demonstrated against the move, witnesses and emergency workers reported that more than 70 people were injured in the clashes as Spanish police used rubber bullets and batons to disperse the protesters.
Following last year’s Greek protesters, is it finally over for the European union? Will the Euro zone break up over protests against austerity plans?
The following take differs and is Optimistic to the future of the currency and the union.
The Euro will rise again and the EU will muddle through the sovereign debt crisis and here is why:
Not only that the EU policy makers will introduce additional measures to resolve the crisis and to construct a vision of a viable future fiscal, financial and political structure.It will be because, After all, it is what Europeans want – at least what the younger generation want,
The young European generation believe in the Consumer Culture Theory, a theory that states that consumption is considered as social and cultural phenomena - as opposed to psychological or purely economic phenomena.
Young Europeans borrow today to buy what they can only afford later, they are head over heels buried in unpaid loans, yet economists argue that their borrowing increases consumption, increasing aggregate demand and GDP.
This is true and it explains why is the combined GDP of the Eurozone safely makes the old continent the biggest economy in the world.
Even at the current debt levels the European economy is not weak at all, nobody is debt free, the united states owes china over 4.5 $ trillion yet the financial world is not talking about the US dollar collapsing any time soon.
So why is the Euro taking all the heat? The EU has a major problem, while it has a common central bank it has is no centralized treasury, indeed, the ECB takes care of the monetary policy but when it comes to the more important fiscal interventions the task is left to sovereigns and local authorities.
Admittedly having a centralized treasury is not that easy, first you’ll need to fire your politicians and hire – or elect - others who are more EU biased to handle the formation of the austerity plans needed, and since fiscal policy goes hand in hand with political plans (Greece & Spain’s last riots stands witness) and there will always be the cost of losing the elections, hiring and not electing is more likely to bring in the new policy makers.
That means that the “appointed” policy makers will most likely not share the national anthem of their employers and will do what’s necessary to enforce the fiscal policy needed.
Is this a Threat to Sovereignty? It doesn’t seem to be bothering young Europeans , 53% of Eastern Europeans under the age of 30 completely agree to almost every reform measure suggested by the EU and these countries don’t even have gigantic debt levels like their western neighbors,
Nearly all Eurozone members - 13 of 17 countries - have debt levels exceeding the convergence criteria maximum of 60%. Among this group are the large economies — Germany (81.9%), France (89.4%), Italy (121.4%), and Spain (70.2%).
That is worthy of attention, after all it appears that young Europeans will support the EU policy makers over their own politicians.
Accordingly it is better to leave aside the support levels for the Euros and start knowing this: the reforms are coming and everybody in Brussels knows this already!
Yes, the German average Joe complaints that his hard earned euro is taxed to fund some Greek debt he wouldn't care less about, and Greece is considered one of the smaller economies in the Euro zone whose primary export is olives, but the country has gone on a borrowing spree and their current government debt to gross domestic product ratio stands at 160%. In absolute terms, it works out to around $500 billion and so much of their debt is on the books of European banks including – yes you guessed it –Germany.
Europe was united before, it was under the reign of the Roman emperor, historian Edward Gibbon argued that of the reasons that led to the fall of the empire was introducing a new religion that created a belief that a better life existed after death, citizens lost faith in the civic order that united them, stopped fighting for what the empire stands for. Today it couldn't be more different, now it is that you can have the better life
now and not tomorrow, and that is something young Europeans will fight for.
Hashem Fouad.
July 2012
