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A way of life under threat

Gavin Hewitt | 09:43 UK time, Monday, 15 February 2010

Boy with grandmother - file picIn the United States politicians often speak of the American way of life. In Britain too, there are many eager to defend the British way of life. Their words are rarely defined. Part of the appeal of fighting for a "way of life" is that it is understood intuitively by the audience.

Now the relatively new President of the European Council, Herman Van Rompuy, has begun speaking of a "European way of life". He fears it is under threat. It cannot be sustained in a Europe with sluggish growth, he says.

Only recently, with the euro being buffeted in the financial markets, President of the European Commission Jose Manuel Barroso spoke expansively of "making Europe a resource-efficient, inclusive, social market economy - reflecting what makes us special, the European way of life".

This "European way of life" is a little hard to define, but outsiders usually think it means strong social welfare, high public spending, generous pension provisions and robust safety nets. For many it is a key element in what makes for civilised society.

Part of the fallout from the recession is that the scythe is being taken to public spending. It is not voluntary. It is being driven by the markets, who are forcing governments to reduce their deficits and clean up their finances.

So at a moment when recovery is fragile, governments are embracing deep spending cuts and risking choking off the first signs of recovery. Demand may be being reduced just at the wrong moment. Even so, the public sector is under assault.

Take Ireland. It has imposed a 4bn-euro (£3.5bn) austerity package. Pay in the public sector has been slashed. Welfare benefits have been cut. Pensions for state workers have been reduced. Such a package in the UK would be politically unimaginable.

In Spain, they are considering a 50bn-euro cut in public spending over four years, even though its national debt as a proportion of GDP (at 66%) is below the average in the EU. Their remedies, so far, are not as harsh as the Irish treatment, but last week a document raised the possibility of lowering Spanish retirement pensions. The unions leapt from their seats and the idea was shelved, but it is an indication of the way the wind is blowing. Calling time on a culture of generous provision is so sensitive that the King has spoken up, calling for unity.

Portugal, too, is looking to cut back on infrastructure projects. Austerity programmes are being drawn up.

In France, President Sarkozy faces tough talks with unions and bosses to push through a reform of French pensions. Retirement at 60 is no longer being taken for granted.

And of course Greece is freezing public sector pay, raising the retirement age and is under pressure to prune its generous pension system.

Deficits may be changing the European way of life.

That is a hard message to sell. And Greece shows how hard. The Greek Prime Minister, George Papandreou, played Mr Austerity as he sat with other European leaders last week. When he returned home the tone changed. The EU, he said, had been "timid" in the face of the crisis. He is dead right. If he wants to see "timid" he should visit Germany, where a majority of Germans want Greece thrown out of the eurozone. Why? Because, with the acquiescence of Brussels, Greece massaged its figures to join the euro. Then it fiddled the accounts.

The Germans are not in the mood for generosity. "We don't help an alcoholic by giving him another bottle of Schnapps," said Frank Schaeffler, deputy finance spokesman for the liberal Free Democrats (FDP). The deputy head of Angela Merkel's Christian Democrat (CDU) party in parliament said "if we start now (bailing out), where do we stop?"

A lot of Greeks I spoke to last week want the pain to be shared. They see it as part of belonging to the European Union. In good times it may be so, but they should not count on German or French workers reaching into their pockets to save them. A bail-out can't be hidden away. People will know and some taxpayers may object. This is where the IMF becomes an attractive option. Europeans may have to swallow some pride and allow an outside fund to do what they may find politically difficult.

Now in Brussels, Mr Papandreou was saying that Greece was not asking for any money. Well not yet, but a member of his inner circle told me last week that the markets did not believe that Greece could cut its deficit to 3% of GDP by 2012. Either Greece will be rescued or it will default. That is the message I took away from Athens.

Even if the EU breathes life into a rescue package the euro is wounded. Too many economists believe it has flaws written into it. It is difficult sustaining a single currency when sovereign states have different fiscal policies. Some in Brussels see this as an opportunity to push for further integration. It will be a move full of risk. There is no evidence the voters want it, as was shown in some of the votes on the Lisbon Treaty. And such a pooling of sovereignty could not be just nodded through as if it were some minor adjustment. In any event, if the euro were run by a single treasury it would deepen divisions between those in the eurozone and those outside.

So, as often happens in politics, events move with bewildering speed. Just a few weeks ago European officials were clamouring for their voice to be heard in the world. Now their single currency faces an uncertain future and the "European Way of Life" is just that bit harder to define.

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