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Austerity has provided nothing but pain in one’s economy and dislike among voters. England pursued with austerity and the economy as of beginning of this week fell into a double dip recession. France is on the verge of changing government as Sarkozy has fallen out of favor. People are tired of austerity and are demanding stimulating growth. Germany insisted on this plan to cut public borrowing sharply, and immediately, and euro-area governments hoped it would restore stability. It’s doing the opposite. The pact is proving so unpopular that it is undermining governments – and not just in the peripheral countries most obviously at risk. The stresses caused by the EU’s strategy influenced the presidential election on Sunday in France and forced a crucial partner in German Chancellor Angela Merkel’s austerity drive, Dutch Prime Minister Mark Rutte, to offer his Cabinet’s resignation on Monday. This new political turbulence is spilling over into financial markets, threatening a vicious circle of worsening economic stress and political risk.

Holland

While socialist Francois Hollande’s campaign against French President Nicolas Sarkozy’s “excessive austerity” has received considerable attention, Europe’s big surprise came when the Dutch coalition government resigned, days after the far-right anti-EU Freedom Party refused to go along with the centre-right Liberals’ plans for budget cuts to comply with the new fiscal pact. Voters in the Netherlands don’t appear to be deserting the Liberals. But the collapse of the coalition and the need for new elections complicates parliamentary ratification of the budget deal, due by the end of the year. There will be some crowing about this. The Netherlands has been Germany’s leading ally in the EU, calling for stringent budgets and criticising the fiscal self-indulgence of Greece and other sinners. The Dutch government was as keen as Germany’s to ram the pact down the throats of the so-called Club Med countries. Now it has choked on its own efforts to comply, making Mr Rutte the latest of about a half-dozen European leaders to be unseated by the financial crisis.

The Netherlands’ sovereign debt position is strong – it enjoys an AAA rating, despite concerns over high levels of household debt. On Monday, investors demanded higher yields from Dutch government bonds, but

Spain Downgraded As Austerity Not Preferred

Spain remains the country to watch. Its debt position is anything but strong. Yields on its 10-year bonds rose above 6% on Monday, stirring fears of insolvency. Spain is the euro area’s fourth-largest economy, and might settle the EU’s fate. If it goes the way of Greece, the EU’s financial defences would probably be overwhelmed, and the wider global recovery would again be in peril. That doesn’t need to happen but the fiscal pact makes it more, rather than less, likely. Even if the deal on budgets were politically feasible, it would be financially unsound.

In countries without recourse to monetary easing or currency devaluation, the strategy demands too much austerity too soon. It’s one thing to apply pressure on governments for needed policy reforms – evidently the guiding principle of German policy. It’s another to bring the ceiling down on the entire euro project. That’s the gamble Germany is now taking.

Spain’s new government has made brave budget cuts – though not brave enough to fully comply with the pact’s demands – and under the most difficult circumstances is carrying out long overdue labour-market reforms. Yet according to the International Monetary Fund, Spain faces continuing recession followed by a dismally slow recovery, even if all goes well. Its unemployment rate is more than 23 per cent; one in two young people is without work. Remarkably, the commitment of Spanish voters to the EU seems not to have dimmed. But there must be a limit to Spain’s tolerance of such acute economic pain. The EU should stop testing it.

Ratings agency Standard & Poor’s downgrade of Spain’s credit rating Thursday for the second time this year highlights the fact that austerity alone is not enough to tackle the euro zone debt problem. Spain’s long-term debt was cut to Triple-B plus from A, while its short-term rating was lowered to A-2 from A-1. In January, S&P downgraded Spain along with eight other euro zone countries of their coveted triple-A status. The latest downgrade was prompted by concerns over growing government debt amid a contracting economy. The Bank of Spain said earlier this week that the economy probably contracted 0.4 percent in the first quarter of 2012. Official figures are due April 30. Austerity measures are beginning to impact European economies as they slip into recession.

Romania: Government Collapse’s following Holland

Romania’s currency the leu hit a record low on Friday after a confidence vote toppled the country’s government. The currency fell to 4.4010 per euro, before recovering slightly to trade at 4.3975, 0.4 percent lower on the day. Romania’s government lost a confidence vote on Friday just two months after it took office, raising the prospect of months of political turmoil and questions over its austerity program.

The European Union’s second-poorest member cut salaries and raised sales tax to put its economy on a more solid footing. But austerity has dragged on economic recovery and has now toppled Mihai Razvan Ungureanu just two months after he took office. The motion had the backing of 235 MPs, compared with 231 needed to topple the government. ”A new and better government will be coming,” said opposition lawmaker Dan Rusanu. A second, government MP confirmed the count.

The International Monetary Fund halted a review of Romania’s 5 billion euro aid deal on Friday pending the formation of a new government, an official said. ”Talks would continue at a technical level. The review (which started April 24) cannot be completed as scheduled,” Romania’s IMF representative in Washington Mihai Tanasescu told Reuters. ”The IMF is now waiting to have a partner for discussion at a government level.”

Czech Government Faces Confidence Vote as Austerity Bites: Next Gov’t To Fall?

The Czech Republic’s government faces a confidence vote in parliament on Friday, the latest European government to face protest over tough spending cuts and unpopular measures needed to cut the country’s budget deficit back below 3 percent of gross domestic product. They will have the 102 votes necessary” to pass the vote, but there is a very important point here with the Czech Republic, that unlike the likes of Spain and Greece, the Czech Republic’s problem is not about fiscal sustainability but much more about coalition politics.

Leaders of the 3 Czech parties that form the government agreed to dissolve their coalition. Prime Minister Petr Necas had pushed for the break-up after a lawmaker from the Public Affairs party, one of the three parties that make up the governing coalition, was convicted of paying bribes but refused to step down from his parliamentary seat. Necas said if the government loses the vote he would seek to dissolve parliament in May and hold elections in June. Almost 100,000 people protested against cuts in Prague at the weekend in one of the biggest anti-government demonstrations since the collapse of communism in 1989.