Is Debt Crisis Pushing Europe to Adopt Economic Reforms

Every time when crisis come it may bring the thoughts of hope. In the same way ashes of Europe’s debt crisis, some see the seeds of long-term hope. There are many thing which can be done in the time of crises.

That’s because the threat of bankruptcy is forcing governments to implement reforms that economists argue are necessary to help Europe prosper in a globalized world – but were long viewed as being politically impossible because of entrenched social attitudes.

Changes such as making it easier for firms to fire workers or stare down unions were until recently dismissed as simply not being the “European way.” Similarly, many were skeptical that European governments would or could tackle bloated public payrolls, trim entitlements or force people to retire later.

When it became clear earlier this year that Greece’s debt crisis was rattling markets everywhere and dragging down Europe’s common currency, it was business as usual: European governments seemed to dither, disunited. Germany came in for particular criticism, appearing to hold up a bailout of Greece because it was unpopular with German voters.

But over two months of hectic activity a new narrative has started to settle in, to the surprise of many a euro-skeptic: When the chips were truly down, the countries of the EU found a way to strike hard and fast – and together.

European leaders first joined with the International Monetary Fund (IMF) in May and agreed on a $1-trillion rescue fund for financially troubled countries. Then Greece announced deep budget cuts, Spain cut employer costs and France raised its retirement age. France also joined Germany and the UK in imposing harsh budget cuts.

To Marco Annunziata, the London-based chief economist for Unicredit, those are signs that Europe is finally facing the reality that it must make structural changes.

“Governments are reluctantly acknowledging that reforms are needed and there is no more room for delays and excuses,” he said.

“It looks like perhaps we are past the longest stage of denial, which in Europe has lasted at least 20 years.”

Annunziata said governments now face a crucial test of political will: Can they implement the reforms they have announced? Already in Italy, Premier Silvio Berlusconi has suggested he will reconsider some of the austerity measures he announced last month to trim the deficit after facing opposition and seeing his popularity dip. And France will have to steel itself for strikes.

Still, there are signs Europe may muster passing grades.

In Spain, employers had long moaned that laying off workers is so expensive that they were wary of hiring in the first place. Political leaders felt no urgency as the economy grew at a healthy clip, buoyed by a construction boom and cheap credit. Nor did they when the boom ended and the jobless rate soared to 20 percent.

Then came the May 28 decision by the credit rating agency Fitch to downgrade Spanish debt. Facing a growing risk of a debt default, the Spanish Parliament quickly passed measures that make firing cheaper and even let companies talk their way out of collective bargaining agreements if times go bad.

Many changes are proposed. The changes were imposed by Premier Jose Luis Rodriguez Zapatero’s government almost overnight, after nearly two years of state-sponsored talks between unions and management finally collapsed a few weeks ago.