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Pascal Lamy, director general of the World Trade Organization, WTO, arrives for a panel session at the 42nd annual meeting of the World Economic Forum, WEF, in Davos, Switzerland, Thursday, Jan. 26, 2012. The overarching theme of the meeting, which will take place from Jan. 25 to 29, is "The Great Transformation: Shaping New Models". (AP Photo/Anja Niedringhaus)
Governments need to win over public on austerity measures, E.U. leaders say
Debt crisis » Re-establishing confidence in the euro and in the ability of European countries to engage in serious belt-tightening is the top priority.
First Published Jan 26 2012 12:54 pm • Last Updated Jan 26 2012 12:57 pm

DAVOS, Switzerland • Cash-strapped governments in Europe must persuade skeptical citizens to accept severe austerity measures if their countries are to recover and thrive in an increasingly tough global economic environment, European leaders said Thursday.

If there’s no seeming light at the end of the tunnel and divisions within society get too wide, they said Europe’s imperiled economies — and Europe as a whole — will find it increasingly difficult to get to grips with its two-year debt crisis.

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They warned at the World Economic Forum that Europe appears set to be eclipsed by the rapid economic rise of China, Brazil and others.

For Enda Kenny, the prime minister of bailed-out Ireland, governments will fail if they don’t carry their people with them when imposing measures that reduce the living standards of large chunks of the population.

"When they give a mandate and they give trust to government and say ‘Here’s the plan and let’s all work together,’ things can actually happen faster than people might imagine," Kenny said in a panel that included two other European prime ministers and one president on the second day of the annual gathering in Davos.

The Irish, according to Kenny, "simply went mad, borrowing" in the early part of the 21st century and when a property bubble spawned by easy credit and greed burst, the Celtic Tiger economy imploded. The country was left with a massive black hole in its public finances that could only be plugged by a financial rescue package from the eurozone and the International Monetary Fund.

In return for the money, Ireland has had to cut salaries as well as the size of the state, and increase the pension age. The hope is that Ireland will become more competitive and regain the confidence of the financial markets.

People, he said, following the excesses of the previous decade understand the need for retrenchment but that should never be taken for granted.

"People get frustrated if they don’t see results," Kenny said.

Of Europe’s bailed-out economies, Ireland has been labeled as the star performer. It’s borrowing rates, though still high, are getting back toward manageable levels and it even posted a balance of payments surplus last year after ten years of deficits.

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In contrast to Ireland, Greece has been riven by political infighting that’s fueled disillusion in government and descended into violence on the streets of Athens.

Finland’s Prime Minister Jyrki Tapani Katainen said Ireland was the model for other stricken economies if they are to regain confidence.

"I don’t see any other option," he said. "There’s no short-cut to Heaven."

Much of the debate over recent months has centered more on establishing confidence in the rules and institutions governing the euro than on belt-tightening.

There has been a rising chorus of opinion for Europe, and Germany in particular, to back alternative ways out of the crisis, such as boosting its rescue fund or allowing the European Central Bank to play a more pivotal role by buying up more and more of the debt of the imperiled.

On Monday, European leaders are meeting again in Brussels to thrash out a framework for much stricter fiscal discipline. A top priority is re-establishing confidence in both the euro and in the ability of European countries to engage in serious belt tightening

David Cameron, the British Prime Minister, again urged Europe to do more.

"We need to be honest about the overall situation," Cameron said. "The crisis is still weighing down on business confidence and investment."

But the sense of exasperation is not just confined to Europe. The fate of the global economy hinges on whether Europe finally gets a grip on the crisis that’s threatened to spread to big economies such as Italy and Spain.

"We need to take out the bazooka immediately before the powder gets wet, which is the risk we are running," said Mexican President Felipe Calderon.

Britain’s Cameron also joined Germany’s Chancellor Angela Merkel in backing the idea of a free-trade deal between the European Union and the U.S., claiming that a trans-Atlantic pact could deliver a much-needed boost to global commerce.

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