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May 13, 2012
State vote in Germany may signal the end of austerity consensusGreece, France, and the most populous state in Germany -- what they have in common is opposition to Germany's austerity plans to deal with the monumental debt problems of the euro zone. And Angela Merkel, Germany's embattled Chancellor, could suffer the electoral consequences of this fracturing of the austerity coalition. The Greek government that negotiated the bailout was defeated in last week's elections and is likely to elect a far left government in next month's second round of voting that will reject the terms of the EU/IMF bailout. And Merkel's partner in the austerity coalition, Nicholas Sarkozy, was also ousted by socialist Francois Hollande, who promised to restore budgdet cuts and perks to unions and students. Now Merkel faces defeat in an important state election.
So the people of Europe are going to see what happens when governments try to spend their way to prosperity while virtually ignoring the continued build up of debt. It will almost certainly be a train wreck, of course -- at least for Greece that is now given a 75% chance of defaulting. There's no way to get where the Europeans want to go from where they are now without reform. Any contrary notions are fantasies constructed by opportunistic leftist politicians who have been successful in convincing voters that they can have their cradle to grave welfare state and not pay for it. And when the day of reckoning comes, they will blame the rich and the banks and anyone except their own idiotic policies.
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