PIIGS Go On A Diet To Save Room To Eat

The Emerald Isle is the latest bailout recipient to get budgetary religion

It is very cold in London. “This is the coldest it’s been in 25 years,” said a colleague. People are bundled up in scarves and hats. There are patches of ice on the sidewalk. Heck, it could be Baltimore or New York. London is usually milder. It snows occasionally, here, but rarely do you get such a severe cold snap.

Down on the Iberian peninsula, the prime minister of Spain gave speculators a little advice. Don’t sell short Spanish debt, he said. As far as we know, government officials give investment advice that is at least as unreliable as the advice you get from anyone else. But that doesn’t mean Jose Zapatero will be right.

The difference between Europe and the U.S. is that the Europeans have begun to get their fiscal houses in order, sort of. The latest news is that the Irish have committed to lop another 20% off of state spending. The Greeks, Portuguese and Spanish are all headed in the same direction. They’re acting like responsible citizens. In order to convince investors that they’re good for the money, they’ve got to cut spending. If investors lose confidence, they won’t be able to borrow money at low interest rates.

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Let’s get this straight. They’re cutting expenses so they can borrow money? Yep. If they don’t cut expenses, they won’t be able to borrow at decent rates, right? And then what? Then they’ll have to cut expenses even more. So why not just balance their budgets now, so they don’t have to borrow at all?

In America, federal deficits are projected from here to eternity. There is no plan to balance the budget ever again. At least the Europeans are trying to get their budget deficits down to 3% of GDP. Ireland pledged to do so as part of its rescue deal, and to cut 25,00 jobs from the payroll, 10% of its entire workforce.

That was enough to bring out the protestors, even in this bitter cold.

Cutting Expenses to Borrow More Money by Bill Bonner originally appeared in the Daily Reckoning.

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