Monday, August 20, 2012

Getting Government off the back of the economy.

A good article from Tory MP Pierre Poilievre It all seems rather hopeless for Europe’s debtor-nations. Four of them — Portugal, Ireland, Spain and Greece — have needed bailouts since the beginning of the sovereign debt crisis. Though the triggers for today’s crisis differ by country, the underlying cause is the same: too much government spending, financed with too much debt. In each of these countries, government’s share of the economy is bigger than the OECD average. Three of the four governments have more debt than their economies have output. Yet, hope springs eternal. We know that these governments can transform themselves, because it has been done before. Consider three other countries whose bureaucratic welfare states once buried them in debt and joblessness. Over the last two decades, Canada, Israel and Germany smashed stereotypes about themselves, with sharp and successful departures from a culture of big government towards one of free enterprise. Let’s start with Germany. Only 25 years ago, a fifth of Germans lived under communism. One would have expected it to be especially difficult for them to transition to the free market. And difficult it was. In his first term in office, chancellor Gerhard Schroeder’s socialist policies made Germany the sick man of Europe. As the Wall Street Journal’s Raymond Zhong recently explained, Germany suffered a 10% unemployment rate and debt levels that exceeded the European Union’s allowable limits, after four years of Schroeder. But then the unlikely happened. The former German leader told Zhong the story of his transformation starting in 2003. That was when he launched “Agenda 2010,” which cut welfare programs, simplified labour rules and lowered taxes for businesses and workers. The success of these changes was palpable, explained the Journal piece. Upon taking over from him as chancellor, Angela Merkel credited Schroeder “for bravely and resolutely opening a door with “Agenda 2010,” so that our social systems could be adapted to a new era.”

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