The Euros are pushing for a "New Fiscal Compact." A catchy name for independent people speaking different languages to subject themselves to the stringency of Germany and the Bundesbank. No easy task. The austerity movement here is growing but even slowing the growth rate of spending is proving difficult. The Super Committee failed embarrassingly. Is austerity a winnable economic policy for the world?
The European push for fiscal oversight will gain traction with the IMFs stepped up involvement. In the US, States would defend their federalist rights vigorously if similar pressure were put on them from Washington. The 1937 recession is an example of embracing austerity after a crisis. The Roosevelt administration pulled the budget back toward balance abruptly. Balance is by no means doable now but the rate of change in decline may be the signal ahead. Defaulting entities and austerity can be a nasty mix.
I have said many times that citizens have the Constitutional right to be dangerously wrong about an issue.The global austerity movement is coming too quickly for economic advance. The failure of the movement to grab traction so far has been a huge support. Austerity hurts. Austerity without buttressing growth incentives. Austerity too soon, let alone during, a structural financial meltdown can leave a mark. The problem with discussing these fears is being painted as a Keynesian apologist. The fact is we. and the Euros must come to terms with austerity. I would just prefer the economic base case is stronger and the system in more stable (rather than ICU) condition when these difficult decisions are made. Growth and prosperity is an election theme. Austerity, submission to a quasi-governmental agency and pain are very hard to get hyped up about.