By Frida Ghitis, Special to CNN
updated 10:33 PM EDT, Thu April 5, 2012
Amsterdam, Netherlands (CNN) -- The problem has become so complicated, that perhaps only a child can solve it. An 11-year-old Dutch boy, Jurre Hermans, entered a serious economics competition with a plan for bringing the Greek economy back from the brink.
In the end, Hermans, the youngest ever to enter the Wolfson Economics Prize, received a 100 euro voucher for his original idea -- conceived on the notion of exchanging debt for slices of pizza. Maybe Washington can invite him for some budget brainstorming. Meanwhile, Europe's crisis goes on, still in need of creative solutions.
Beyond the placid old Amsterdam canals, the bustling bike lanes and the quaint tulip fields, roils a furious debate about the future of the Netherlands. On the surface, the issue is what to do about the budget deficit. In reality, it is about whose life will become more difficult. Who will pay more? Who will receive less? It is a question coming soon to a deficit-spending country near you: the United States.
In other parts of Europe, in places like Greece and Spain, similar discussions have toppled several governments and have escalated into huge, sometimes violent protests, as people lash out in frustration against government decisions they find intolerable.
I believe that some time next year, with the election in the past, when either Barack Obama has started his second term or Mitt Romney has finished unpacking in the White House, Americans, too, will discover that budget debates are not just academic exercises or political theater. It's a good bet that just as Europe has come up against the reality that deficits cannot grow forever, so too will America. Investors, who have taken losses in the European debacle, will start looking at America's books, questioning its solvency, and demanding change.
The European economic crisis has unfolded most dramatically in Greece, where the economy has plunged into a depression. With its budget deficit and national debt rising out of control, the Greek government sought help from the eurozone, where rich countries demanded stark austerity measures in exchange for a bailout.
Greece, like other countries in Europe, had given up its own currency in exchange for the euro, so it did not have the option of printing more money or devaluing the currency to pull itself out of the mess created in part by politicians who gave voters what they wanted without troubling to bring up the unpleasant fact that someone, sooner or later, would have to pay.
Today, the Greek people are enduring economic pain that makes America look like a paradise of prosperity. Unemployment stands at 21%, wages are collapsing for both government and private sector workers.
A series of new taxes have been imposed, including a "solidarity" tax, new property taxes and higher self-employment taxes. The VAT, a national sales tax on all transactions, has jumped from 13% to 23%. The minimum wage has been been sharply cut. Poverty has increased dramatically.
After all that, Greece is still required by European rules to cut another 4.7% of gross domestic product from its budget, equivalent to the United States suddenly cutting more than $700 billion.
Even if it achieves those goals, or rather because it will enact such draconian cuts, the Greek economy is expected to sink deeper.
The European economic pact requires countries to keep their budget deficits below 3% of GDP. That became increasingly difficult as the world entered a recession. In Greece's case, the government had been concealing its deficit spending. In other countries, especially those that relied heavily on real estate, home prices collapsed, and tax revenues declined, opening up the budget gap.
The Dutch economy, one of the healthier ones, now faces a 4.6% deficit. There's talk of across-the-board pay freezes and even more social safety-net cuts, among other ideas. Unemployment is just 6%, but the country has returned to recession.
In Spain, the government wants to avoid requiring a bailout the way Greece, Ireland and Portugal have. The newly-installed government of Prime Minister Mariano Rajoy needs to slash the budget by 5.5% of GDP, even more than Greece.
Spain expects unemployment, already the worst in the developed world, to go over 24% this year, about the same experienced by the United States during the Great Depression.
The European crisis is far from over, but it already has important lessons for the United States, where federal deficit figures are treated as poison darts to be thrown among politicians, rather than as an important problem needing adult solutions.
The top three lessons from Europe are these:
• Deficits matter and sooner or later will have to be cut
Read the other two lessons here, but be reminded of the first. Some think deficits don't matter: http://www.cnn.com/2012/04/05/opinio...rticle_sidebar