The Great or Big Saperation.

After the World Cup, austerity measures is the biggest talking point in Europe. Greece has already been shackled, Spain, Italy, etc, are getting there. Germany, which doesn’t need to, is starting. Britain will, by June 22, outline savage cuts in its emergency budget. Sigh.

Almost every politician in Europe, from Angela Merkel to David Cameron, is now firmly committed to the fundamental wisdom of cutting government spending as of yesterday, to reduce government budget deficits, which, in turn, might — or might not — keep those ditsy market types from going berserker every time a bond issue moves a percentage point or so.

It’s utterly boring to be pushed back in time, when words like austerity measures rang like screeching sirens through every alternate Doordarshan broadcast. Some days, I really wonder what I’m doing here in a back to the '70s show.
It is, please note, a completely different kind of animal from the Indian government’s Budget deficit, the fuel and fertiliser and other subsidies. I don’t have detailed numbers for the rest of Europe, but in the UK, government, or what you’d call the public sector, accounts for, according to multiple sources, almost 50% of the economy.

So, when that government decides it’s going cold turkey, there’s a serious reason to worry. Over the past few weeks, dozens of guru types have been almost writing Europe off, predicting double-dip recessions and, at best, a long period of pain.

Forget the headline GDP forecasts. I’m no economist, but having bought that Tshirt and grown up in it, I can pretty much predict what austerity measures will feel like. It will feel exactly like living in a recession, in other words, being poor. Jobs will be hard to find, disposable incomes will fall, and everyone will be even more grumpy than usual. Which brings me to a strange issue. In this roaring debate, I’ve heard little about where growth is supposed to come from, to make up for the shrinking public sector. All these projections are based on a fundamental assumption: Europe has no demand, period.

The growth-led recovery advocates — they are few — assume that without a massive increase in trade, there’s no growth to be had at home. Everyone’s rushing to emerging markets, instead.

To me, that looks like another of those gospel truths, that go kaput in time. If, really , there is no consumer demand or growth in European domestic markets, why exactly is UK’s household debt bigger than its GDP? Obviously, everyone was borrowing money to spend on something. Yes, because funds were cheap, they didn’t scrutinise every purchasing decision or price with a magnifying glass. But they did want those clothes, holidays, homes, furnishings, cars, medicines, insurance, et al. Just because cheap finance has evaporated doesn’t mean demand has. But European consumers, like their Indian brethren, have become fussy about what they’re going to buy, and at what price.
But is anyone restructuring their product or service offerings to address this new value-conscious consumer? No.

Despite, the repeated success of budget business models such as Primark and RyanAir, European business seems stuck in some time high-cost , high-value time warp. Most of my conversations go like: what’s your outlook for European markets? Oh, they’re dead, no growth. Says who? Oh, all the forecasts, based on even more complex assumptions. Right. Innovation, when it’s even mentioned, is almost always associated with very hi-tech stuff that involves even more high-cost R&D ; not basic business practices.

Take a small example. Newspapers are dead, yes? Everyone knows that. Media conglomerates have gone all out in investing zillions on technology, to capture that digital space. Meanwhile, the venerable old Evening Standard, reeling from humongous losses, was bought up by a Russian tycoon for £1 some time ago. It started selling a full-service paper free, distributed at every nook and corner, focused in London. Guess what? Last I heard, they’re making money. Not hand over fist, but enough to protect jobs and give the lie to conventional media business wisdom.

Or take property, perhaps the single sector that has the biggest impact on these economies. I find it impossible to reconcile, in UK at least, the current housing debate . On one hand, everyone is moaning about how property prices are stagnant, falling, and hitting a bust cycle. On the other, they’re moaning about how nobody can afford to buy a home, the huge shortage in housing stock — and I’m not talking only like welfare housing here. What’s particularly weird is that everyone expects the government to solve this problem, i.e., build more affordable housing.

Why aren’t a bunch of companies out there all over UK building like crazy? There’s got to be something fundamentally wrong in a system where there’s so much pent-up demand, but it doesn’t , for whatever reason, translate into a profitable opportunity for the private sector.

I think it’s high time someone gave European consumers — and demand — a break. Instead of squeezing them with austerity measures on one side, and dumping high-cost goods and services on them from the other, it might actually help to produce what they really want to — and can afford — to buy.