It takes two to tango. Because the European Central Bank (ECB) has done its part by buying debt-ridden European countries more time through the LTRO, ECB council member Erkki Liikanen is calling on governments to step up their austerity measures to help resolve the debt crisis.
If you'll recall, the ECB has already lent out 1 trillion EUR in loans to European banks since December, and this has consequently helped keep bond yields from skyrocketing to unsustainable levels.
However, there is no room for slacking off. Policymakers are insisting that more austerity measures are needed amidst forecasts that predict a contraction of 0.1% this year and a soft growth of 1.1% in 2013. They say that confidence needs to be restored and credibility has to be strengthened in the euro zone.
ECB Council member Joerg Asmussen added that all he wants is for all euro zone countries to "do their homework." He said he'd like to see them implement structural reforms, and at the same time, generate jobs. But of course, this is much easier said that done. Trying to create jobs while cutting costs is akin to trying to gain weight while cutting your calorie intake!
Besides, some countries have already implemented some pretty harsh austerity measures.
As I mentioned yesterday, Spain has been in the hot seat as of late as European officials say that it'll have to endure up to 35 billion EUR worth of savings on top of the 15 billion EUR tax rises and spending cuts announced late last year. Of course, this is expected to pull down Spain's output production, and that's saying a lot because the IMF already sees the economy contracting by 1.7% this year.
Greece has also been unable to escape the European Union's hot eye, even with its bond swap ordeal done and over with. According to a recent compliance report, Greece will need to see another 5.5% cut of GDP in government spending in 2013 and 2014 to comply with its fiscal targets.
Remember, Greek officials had a hard enough time passing their austerity measures last year. Citizens took to the streets in a series of violent riots to protest the government's plans to cut public spending raise taxes. Further austerity measures could send protesters over the edge and result in even more mayhem.
Austerity has never been an easy pill to swallow. After all, it essentially requires a trade-off - you sacrifice current consumption for future consumption.
But I suppose it's time we should ask ourselves this question: What other options does the euro zone have? When your economy is as ill as the euro zone's, sometimes you just have to take your medicine, no matter how bitter it tastes.