Can PIIGS Dance the Austerity Two-Step?

Call it the eurozone two-step.

That’s what European nations in distress will be asked to dance on Tuesday, as their ministers present recovery plans to the body of 16 eurozone finance chiefs engaged in an emergency meeting in Brussels.

First, three members of the PIIGS group—Italy, Portugal and Spain, in this case—must convince the body that their proposed budget cuts make sense.

Second, those countries must prove the cuts are politically possible.

Executing that second step is especially tricky, because those countries have a big public-sector workforce and a sense of entitlement in which many believe the government will always provide.

So, naturally, easier said than danced.

Among the ministers, the new consensus is to discipline the weaker members and require accountability. Germany’s Wolfgang Schaeuble, for one, has demanded facts, not declarations of intent.

Debtor Nations
Debtor Nations

Specifically, Italy, Spain and Portugal will be detailing how they intend to slash public-sector jobs, wages and pensions—or, indeed, raise taxes—to cut their deficits.

Meanwhile, investors are still smarting from and feeling fearful about investing, following recent riots in Greece related to country’s new austerity measures.

European politicians are keen to keep the lid on the political risk of investing so that they can borrow cheaply and stay solvent. And their seeming herculean task is to drive back the sense of entitlement among some Europeans and replace it with a “popular” recognition that spending is out of touch with the new, political realities.

Importantly, sitting on the sidelines of the eurozone is the United Kingdom. It may prove a critical testing ground of whether investor skittishness shifts to bigger indebted nations, such as the United States.

Britain’s new finance minister George Osborne announced on Monday a new, independent watchdog group that will hold his coalition government accountable when it’s tackling the country’s burgeoning deficit—set to hit $250 billion next year.

With so much at stake and time so precious, let the music begin.

- Simon Hobbs contributed to this story.