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Markets scare Europe into action on spending

Europe and the US take steps to control government spending as financial markets (and voters) roar their disapproval over deficits and debt. But countries must do more than nip and tuck. Structural reforms are needed.

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European and US stock markets are shaking and the euro currency keeps falling, largely over debt woes in Europe (though Korean war talk is also a factor). Now’s the time to remember the words of Rahm Emanuel: “You never want a serious crisis to go to waste.”

In today’s context, the advice from the White House chief of staff would mean this: It’s time for developed nations that are overloaded by deficits and debt to finally clean fiscal house.

No politician likes to do that, because it usually means spending cuts, tax increases, or structural changes that the public resists. But this is the perfect excuse. More than an excuse, actually, because if financial markets continue their disapproval of unlimited government borrowing and spending, they will exact a steep price in less capital for economic growth, stability, and standards of living.

Encouragingly, governments are beginning to heed the markets’ growl.

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