A tale of three cities

The British government announced today the deepest budget cuts in decades,
which will affect the entire population from babes in arms to pensioners,
amounting to 81 billion pounds over four years.

The principal measure is the number of jobs likely to be lost — almost half a
million in the public sector, which will add to unemployment and cut the
country’s tax base. But the government argued that it had no alternative
because of the deficit, which stands at 10 percent of GDP — roughly the same
level as in the U.S. Either the government is right and growth will return, or
the U.K. faces the prospect of a “double-dip” recession.

What is the reaction? Given the depth of the cuts, which entail savings of 7
billion through reductions in welfare including child benefits, and fewer bobbies
on the streets, it’s surprisingly mild. An almost Gallic shrug of the shoulders,
in fact — particularly because the majority of measures had already been leaked
to the newspapers, so anything short of Armageddon was going to be greeted with
relief. And the National Health Service, holy cow, was spared the ax.

Across the channel in France, however, millions of French have been staging
violent protests for the past week against far less stringent measures. The
French government is raising the retirement age from 60 to 62 — compare, if you
will, the British decision today to speed up the rise from 65 to 66 by 2020,
six years earlier than planned.

France has always had a militant union base, but this time it has been joined
by students worried about having to pay for the retirement of their baby boomer
parents. Luckily for the unpopular President Nicolas Sarkozy, it’s the French
school holidays next week, something that the French take as seriously as protesting.

But as France’s deficit stands at 7.5 percent of GDP, can the government stop
there?

Old Europe is cutting itself adrift from the U.S., where the talk is of stimulus
in hopes of generating growth. Wait a minute, the U.S. elections are in a matter
of weeks — maybe the British solution is just around the corner?