WASHINGTON—Francois Hollande’s election victory Sunday over Nicolas Sarkozy and the losses by Greece’s main political parties, are only the latest examples of the growing anti-austerity backlash in Europe. The Dutch Prime Minister, Mark Rutte, resigned last month after the populist, right-wing Freedom Party withdrew its support in opposition to a proposed €14.2 billion austerity package, which included cuts to healthcare spending and increases in the retirement age.   The Dutch government has been one of the few in Europe to maintain its AAA credit rating throughout the crisis, a sign that support for fiscal tightening is endangered even in the stronger economies.

In Romania, the government led by Prime Minister Mihai Razvan Ungureanu collapsed after only 78 days, making it the second Romanian government to fall over austerity measures this year.  The collapse caused the Romanian leu to fall to a record low against the euro, even after Prime Minister Victor Ponta attempted to calm the markets by appointing a former Central Bank head as finance minister.  Meanwhile, the Czech government narrowly survived a no-confidence vote driven by anti-austerity sentiment. And in Ireland, Sinn Fein is building public support based on opposition to Irish ratification of the Fiscal Compact.

For Europe-watchers everywhere, these developments are a reminder that the crisis in Europe is as much political as economic.  Although Europe has the resources to stave off further sovereign defaults, and the economic incentives to preserve the eurozone, it remains to be seen whether political imperatives in the pro-austerity countries can be reconciled with growing political opposition in parts of Europe. The adoption of a fiscal compact at the European level, moreover, means that the debate over austerity has now merged with the debate over Europe itself.  In the Netherlands, the Euro-skeptic Freedom Party argued against budget measures that impose “suffering for the sake of dictators in Brussels.”  In France, both Hollande and Sarkozy appeared at times to be running against Brussels.   Certainly, Hollande’s victory was based in large part on his commitment to renegotiate the European Union’s Fiscal Compact.

Real questions remain, however, whether Hollande and the emerging anti-austerity coalition will be able to translate campaign rhetoric against austerity into an alternative strategy that both satisfies creditors and puts Europe on a sustainable path to growth.  So far, Hollande’s suggestions of a “growth pact” for Europe are focused on more borrowing and spending at the European level, rather than measures to spur structural reform.  And his proposals to increase public spending in France will be difficult to reconcile with his commitment to eliminate deficit spending by 2017.

For U.S. observers, one lesson is clear: it’s critical that the United States address its own economic challenges before the markets force drastic action like the measures under debate in Europe.  For one, deferring action until a crisis develops makes solutions harder mathematically.  In Greece, citizens are facing a 77-percent increase in the value added tax and a €1.1 billion cut in healthcare benefits.  In Italy, the total tax burden would increase 45 percent.  In Portugal, pension payments will be cut by €1.2 billion this year.    The United States still has the opportunity, by acting quickly, to rein in spending and preserve entitlement programs with more modest measures.  Even more aggressive debt reduction measures in Congress, for example, shield current retirees from benefit cuts and allow continued increases in health care expenses, though at a slower rate.

Deferring action also raises the political costs.  Unlike Germany, which undertook reform at a time of higher growth, most of Europe is attempting reforms just when governments have the least credibility to ask their voters to accept painful measures.   Although the U.S. recovery is still lackluster, entitlement and budget reform will go down far easier with voters today than at a time of severe economic crisis.

Kristen Silverberg is Senior Resident Fellow with the German Marshall Fund of the United States in Washington DC. She was previously U.S. Ambassador to the European Union. 

WASHINGTON—Last week’s International Atomic Energy Agency (IAEA) report on Iran further refutes the conclusion of the 2007 U.S. National Intelligence Estimate (NIE) that Iran abandoned weaponization activities in 2003. The Annex to the report makes clear that although Iran temporarily halted weaponization activities in 2003 on the heels of the Iraq invasion, the activities resumed later under a different Iranian entity. In addition, the report spells out details of Iran’s preparations for detonation experiments thought to be “strong indicators” of possible weapons development.

Leading European intelligence agencies, as well as many U.S. experts, had previously rejected the NIE’s conclusions as implausible. The IAEA report will focus additional attention in the United States on the question whether the intelligence community should further revise or withdraw its conclusions. Moreover, the report will make clear to governments determined to avoid a nuclear-armed Iran that the window is fast closing on the possibility of effective sanctions.

In the view of many experts, the Iranian program is advancing dangerously close to breakout capability. Iran has long had ample delivery devices for a nuclear weapon in the form of a relatively advanced ballistic missile capability. The IAEA report details Iran’s progress in developing a detonation capability, and Iran already possesses almost 5,000 kilograms of low-enriched uranium. According to David Albright of the Institute for Science and International Security, this amount, if enriched further, is sufficient for four nuclear weapons. Albright assesses that once Iran moves to enrich fuel to weapons grade, it could reach breakout capability in only six months. The question now is whether and how the United States and Europe will respond.

We recommend, as one option, that the P3+1 (U.S., U.K., France, and Germany) table a new Security Council Resolution. Membership of the Security Council is, admittedly, unfavorable for sanctions resolutions at the moment, and there will inevitably be Chinese and Russian obstruction. On the other hand, both China and Russia have previously agreed (after painstaking negotiations) to four separate UNSC sanctions resolutions. The United States, moreover, could more fully engage the significant diplomatic weight of the Saudis, who have leverage with the Chinese and may be newly motivated to assist by the recently-revealed plot against their Ambassador. With a significant diplomatic push, the effort may well succeed.

Second, with or without a new Resolution, the U.S. should adopt new bilateral sanctions. Under U.S. law there are two powerful remaining options: Treasury could sanction the Central Bank of Iran, essentially preventing any bank doing business with the Central Bank from having a correspondent account in the United States. Alternatively, the United States could target the National Iranian Oil Company (NIOC), cutting off oil revenues and limiting Iran’s supply of refined petroleum.

Third, the United States and its allies should reaffirm the existence of a credible military threat to Iran if the regime continues to pursue a nuclear weapon. The United States has reiterated that military options remain on the table, and U.K. military planners are reportedly stepping up efforts to develop contingency plans to participate in a military operation against Iran. As a next step, the United States could consider joint military exercises with Israel and a willing European ally or allies.

Finally, the United States and Europe should take additional steps to provide Iranian dissident groups with both material and moral support. Although the regime’s violent suppression of the Green Movement following the 2009-2010 protests has prevented the Movement from continuing to stage large protests in the streets, the regime’s behavior has also served to significantly undermine its legitimacy in the eyes of the Iranian general public. This vulnerability is compounded by recent reports of government corruption.

Iran experts point out that the nuclear program began under a pro-Western government and continued under “reformist” Iranian presidents. That said, there is no question that the chances of persuading the Iranian government to abandon its nuclear weapons program improve significantly if the current regime ends. One of the rallying points of young members of the Green Movement has been the country’s isolation from the rest of the world and economic deprivation in Iran resulting partly from economic mismanagement and partly from international sanctions. A government brought into power by the Green Movement would have significant incentive to rebuild ties with the international community.

To date, restraint by Israel from military action has prevailed in part because of the perception that nonmilitary options remain on the table. The IAEA’s report, however, reveals that the window for these options is closing, and that the costs of inaction are rising. Just in recent months, then-Chairman of the Joint Chiefs of Staff Admiral Michael Mullen and U.S. Defense Secretary Leon Panetta have spoken publicly about Iranian attacks on U.S. soldiers in Iraq; the United States has revealed a plot to attack a foreign diplomat and U.S citizens on U.S. soil; and the IAEA has now reported progress toward breakout capability.

Whatever the costs of the actions we recommend, the costs of inaction are higher. A nuclear armed Iran is in no nation’s interest — including Iran’s. Resolving the issue will require bold and decisive leadership from the United States and Europe.

Ambassador Kristen Silverberg is the former U.S. Ambassador to the European Union as well as former U.S. Assistant Secretary of State for International Organizations. Daniel Fata is the former U.S. Deputy Assistant Secretary of Defense for Europe and NATO. Both are Transatlantic Fellows at the German Marshall Fund of the United States in Washington.

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