Stephen Pope Comments: Budget Cuts Fit For A Queen, And A Prime Minister, And Soon School Kids And Retirees…And Us?

July 7, 2010, ABC News Online

European leaders are in the midst of a brutal – and very public – belt tightening. But there's a clear sense it is cut now, or go bust later. This week, Queen Elizabeth cut her travel budget by forty percent (which will mean, among other things, fewer jaunts on the royal train at $75,000 a trip), and cut back on regular upkeep on the palaces, so much so, that royal staff have been seen holding buckets under leaks in the palace roofs, or so the story goes.  Prime Minister David Cameron ditched the motorcycle escort for his official car and cut parliament members' annual vacation to four weeks from an envy-producing twelve. French president Nicolas Sarkozy cancelled his summer party and fired two ministers for flouting the new national ‘austerité' – one who paid $151,000 to charter a flight to the Caribbean for a conference, and another who spent $15,000 on Cuban cigars.

Political grandstanding? Not likely. Cuts to government perks are softening up citizens for massive budget cuts not seen here since the end of World War 2. The British Government, for instance, has already announced public spending cuts of 25% though many believe they'll be closer to 40%. Europe is rife with examples of painful cuts for average Joe's, Jose's and Jean's.

Britain cancelled renovation projects for 700 schools and raised the value-added tax – a kind of sales tax applied to many day-to-day goods and services – to a whopping 20%. Ireland –charter member of the so-called ‘PIIGS' economies of Portugal, Ireland, Italy, Greece and Spain  with the largest debt burdens –has cut public pay 15% and the state aid for children by 10%. In Italy, as the government slashes benefits, the rural poor fear the return of Mafia dominance. There are even stories of pizzerias burning wood from coffins to fuel their ovens. Greece, the country at the center of the most recent debt-induced panic, has come up with the most creative – and desperate – way to shore up its public coffers. It is selling hundreds of its 6,000 islands, among them, a large swathe of tourist-favorite Mykonos. Of course, that's just the most entertaining of what's been a blistering tear through public spending. The Greek government is raising the retirement age for some jobs by a palpitation-inducing 20 years. France is raising the retirement age to 62 from 60 - a major move in a country that only a few years ago cut the work week to 36 hours. (Those extra two years will mean 3840 more hours of work.)

What's it mean for us? For one, many US economists are worried about Europe flooding the US market with cheap imports; that is, while they cut deficits, they hope we'll continue to spend, buying German Mercedes and French wine and British aircraft engines, aided by a weakening Euro and Pound against a strengthening dollar. Moreover, while the US government has the advantage of an international bond market still hungry for US Treasuries, the cuts on this side of the pond could be a harbinger of things to come for us.

Stephen Pope, chief economist of Cantor Fitzgerald, said, “Eventually, all developed nations who are running high deficits – including America – are going to have to cut.”

Painful prospects indeed. And in Europe, the word is already out: these cuts apply to everyone, right up to the queen.