My family and I were in Northern Ireland two weeks ago visiting cousins. While driving from Limavady to Monaghan, we heard a heated talk-radio debate almost completely in Gaelic. The one English phrase that kept popping up was "pension fund." [See a slide show of 5 Debt Management Tips for Obama.]
The commentators were animated because Northern Irish pension funds are in big trouble, especially those of civil servants. According to government statistics cited in the Belfast Telegraph, nearly 30 percent of the workforce in Northern Ireland is employed in the public sector—compared with less than 20 percent in the rest of the United Kingdom—and the government's liability for them is projected at £1.2 trillion, a whopping 85 percent of Britain's gross domestic product.
That's not all. The Labour government, which was in power for 14 years, left a £155 billion budget deficit for the new Conservative-Liberal Democrat coalition government, the largest deficit of any economy in Europe, with the exception of the Republic of Ireland. Public spending in Britain now stands at nearly half of the GDP; most healthy economies keep it closer to one third. So Chancellor of the Exchequer George Osborne plans to cut government spending across Cabinet-level departments by 25 percent, freeze civil service salaries for two years, reduce the tax credit for families, cut corporate taxes, and increase the value-added tax on all. At the same time, he'll remove many low-income citizens from the tax rolls.
"We've been tough, but we've also been fair," Osborne told Parliament. "We have set the course for a balanced budget and falling national debt by the end of this Parliament. We have insisted that four pounds of every five needed to reduce our deficit will be found from government spending. We have protected capital investment from additional cuts and got to grips with the soaring costs of welfare. We have provided the foundations for economic recovery in all parts of our nation and given our country some of the most competitive business taxes in the world."
Obviously, there are big differences between what's going on there and what we're facing here. But judging by the extensive coverage in the British and Irish papers—the only stories that got a comparable amount of attention were the outrage at England's keeper missing that American goal in the World Cup and Sweden's Princess Victoria marrying her personal trainer (headline: "Do you take this gym coach?")—President Obama could take a page from Prime Minister David Cameron's playbook.
First, Obama should prepare the public for what's coming. We heard a lot about the president's debt-reduction commission when it was announced, and nothing since. This fall, the commission should start a steady drumbeat about what's coming in November. In the United Kingdom, the coalition government has been carefully orchestrating the public rollout of the emergency budget, beginning with Cameron warning the public of the "pain" to come. His deputy, Nick Clegg, added a promise to protect the most vulnerable. Then a series of public events led up to Osborne unveiling the new emergency budget. After the announcement, the papers were filled with examples of how the budget would affect citizens' daily lives, with page after page of details clearly supplied by Osborne's office. The tone of the coverage was that the chancellor was likely to be unpopular for a while, but that he'd be probably be remembered in the long run for doing the right thing.
Second, get it over with—and quick. Foreign finance ministers, with whom Osborne met before the election, warned him to "front-load" the spending cuts based on similar experiences in countries like Canada and Sweden. "The maximum period during peacetime that people will accept an austerity government is probably one, maybe two years," one source close to the chancellor told the London Sunday Times. "We have to get all the pain into the first budget. We will not be given a second shot at this."
Third, rise above the fray. "I hope some of these folks who are hollering about deficits and debt step up, because I'm calling their bluff," Obama said at the G-20 summit. Contrast that with the Tory slogan, "We are all in this together." Granted, the United Kingdom has a coalition government and we don't—but it has a united-we-stand, divided-we-fall ring to its rhetoric that appeals to all sides. Lately, Obama seems a long way from "Yes, we can."
Fourth, don't just play to your base. Judging by what he said at the G-20, if Obama had his way, the U.S. government would continue trying to stimulate its way out of the recession, which appeals to his liberal base. Similarly, if Cameron had played only to Tories, he'd be offering a budget that gets balanced only through spending cuts. But to hold his Conservative-Liberal Democrat coalition together, Cameron is committed to using an 80-to-20 ratio of spending cuts to tax increases. This means that since the package includes £10 billion in new taxes, it must also include cuts totaling £40 billion over the next few years—the equivalent of the entire annual British defense budget. Liberal-Democrats didn't like the spending cuts; Conservatives didn't like the tax hikes; and Labour hated all of it. But both sides of Cameron's coalition are likely to stick together and get it passed.
Finally, get with the team. Senate Democrats rejected Obama's additional stimulus plan before he left home; at the G-20, he was the odd man out regarding additional spending. A broad consensus is emerging on fiscal restraint, reaching from Cameron and our European allies all the way to soccer moms at Tea Parties. Obama can choose to join the team. Most Europeans and Americans already have.