Austerity vs. the Obama approach

Europeans are torn about the best approach to fix their messed-up economies:  austerity (cutting government budgets and deficits) or stimulus (the government spending even more money and running up even bigger deficits in an effort to jump-start economic growth).  Austerity, as recommended by Germany, had been the plan, but recent elections in France and Greece have favored the pro-stimulus side.  Who is the role model for this position?  President Barack Obama and his stewardship of the American economy.  See  Germany, U.S. head to G-8 summit with starkly different economic policies – The Washington Post.

 

Luther and the Euro crisis

From Lutheranism to its depths to Lutheranism in its shallows. . .

The BBC, of all media, has a feature on the influence of Luther and Lutheranism on Germany’s reactions to the current economic crisis in Europe.  This is at best a cultural influence, to be sure, not a theological one, but it’s worth noting, especially for a nation whose word for “job” is “calling” (Beruf), a legacy of the doctrine of vocation:

Exactly 500 years ago, one of Europe’s greatest thinkers was getting increasingly worried that good German money was being wasted.

Cash was heading to the Mediterranean, subsidising a bunch of badly behaved foreigners.

The 16th Century German thinker was Martin Luther and he was desperate to stay part of that great European project known as the Roman Catholic Church, but equally desperate not to support those who were ripping off German believers to pay to build St Peter’s in Rome.

The unfairness of the abuses fed popular resentment until German patience finally snapped. Luther broke away from his beloved Catholic Church, “protesting” in that great rebellion we know as the creation of Protestant-ism, the Reformation.

Nowadays, Germans – even those who are Catholic or non-Christian – cannot escape the Lutheran past.

It’s also the Lutheran present. The most powerful woman in the world, Angela Merkel, is a Lutheran believer, the daughter of a pastor. The new German president, Joachim Gauck, is a former Lutheran pastor.

And that cliche of “the Protestant work ethic” – hardworking German taxpayers, even if they are not actually Protestant, continue to bail out the euro while being caught in a squeeze as acute as Luther in the 16th Century.

In their hearts, from Merkel to the car worker on the Volkswagen assembly line, the German people are desperate to be good Europeans, just as Luther was desperate to be a good Catholic.

But in their heads, most Germans suspect there may be something wrong – something morally wrong as well as economically dangerous – about giving money to those who, in the German view, have been at best reckless and at worst dishonest. . . .

[After describing an interview with Chancellor Merkel.]  I was struck by Mrs Merkel’s political genius – quiet, cautious, the Hausfrau of her nation, so unlike the noisier, catastrophic male German leaders of the first half of the 20th Century.

The puzzle now is when her political decision to be a good European collides with her Lutheran conscience not to reward bad behaviour or be reckless with money.

I wondered whether for Frau Merkel, like Martin Luther, another reformation in Europe might be on the cards – not tomorrow, perhaps, but one day.

HT:  ABC3Miscellany

And yet, the reason Luther started the Reformation was NOT economic, though arguably the economic issues made people more receptive to the Reformation.   And wouldn’t Germans be tight with their money even if they aren’t Lutheran?  Don’t Catholic Germans feel the same way?  Or Reformed or “Evangelical and Reformed” members of the state church?  And does ANY European country really want to bail out the irresponsible Greeks?

The end of the Euro?

The European economy is in a state of crisis, to the point that some people are thinking that the Euro, the pan-European currency (except for the British pound a few others), may be finished.  Some businesses are planning what to do if the Euro ceases to exist:

International companies are preparing contingency plans for a possible break-up of the eurozone, according to interviews with dozens of multinational executives.

Concerned that Europe’s political leaders are failing to control the spreading sovereign debt crisis, business executives say they feel compelled to protect their companies against a crash that can no longer be wished away. When German chancellor Angela Merkel and French president Nicolas Sarkozy raised the prospect of a Greek exit from the eurozone earlier this month, it marked the first time that senior European officials had dared to question the permanence of their 13-year-old experiment with monetary union.

“We’ve started thinking what [a break-up] might look like,” Andrew Morgan, president of Diageo Europe, said on Tuesday. “If you get some much bigger kind of … change around the euro, then we are into a different situation altogether. With countries coming out of the euro, you’ve got massive devaluation that makes imported brands very, very expensive.”

via Businesses plan for possible end of euro – FT.com.

That wouldn’t help American exports.  But it would mean the dollar would suddenly become very, very strong.  That sounds like a good thing, but it would probably mean more dollars flowing out of this country into foreign imports and investments.

What might the breakup of the Euro mean for the American economy?

Beware of Greeks fearing gifts

The Greeks founded Europe, and now they may end it.  And the vehicle for both is the same:  Democracy.

The European powers carefully crafted a deal to bail out Greece, forgiving half of their debt at the cost of significant reforms and austerity measures.  With this agreement, the world’s stock markets soared.  But then the Greek government, despite its earlier agreement, suddenly decided to put the accord to the vote of the people.  Since the population seems opposed to  austerity, the prospect of a referendum has cast the agreement into doubt, sending the world’s stock markets into another dive and shaking the economic foundations of the Eurozone.

World leaders convening at this resort [Cannes] for a long-planned summit find themselves confronting a suddenly acute crisis over Greece and signs of an economic slowdown throughout Europe that may narrow their room for action.

Greek Prime Minister George Papandreou left a cabinet meeting in Athens early Wednesday with his government intact — for now — and backing his plan to hold a national referendum on the country’s latest international rescue program.

World leaders will gather in Cannes, France, on Nov. 3 and Nov. 4 to discuss Europe’s debt crisis and other economic issues. Thousands of protesters are gathering in France to urge the G-20 leaders to focus on the poor.

But his call for a popular vote on Tuesday has jeopardized the rescue plan and upended the agenda for Group of 20 leaders. Papandreou has been called to a meeting here Wednesday night to explain himself.

This was to have been a summit where the G-20 — the forum where industrialized nations and the leading developing economies compare notes on the world economy — puts its stamp on a plan that convincingly appeared to settle Europe’s lingering financial crisis.

Instead, with Cannes under a security lockdown that has made its streets into a virtual ghost town, the group will be looking for ways to avoid even greater problems. The 17-nation euro region is trying desperately to navigate between the budget-cutting and reform needed to bring down high levels of government debt, and the tepid economic growth that is sapping incomes, causing chronically high unemployment and straining political systems.

via World leaders to confer with Greece over referendum call – The Washington Post.

Do you think the Greek government was right to put the question of accepting the economic package to a popular referendum?  Does the world’s economic problems bring us to the limits of Democracy, the possibility that people will not vote to suffer, even when the alternative may be suffering on a far greater scale?  Can you see something like that happening here, with voters rejecting efforts to cut back federal spending AND repudiating new taxes AND demanding ever more entitlements, to the point of national bankruptcy?

UPDATE:  The Greek government has now scrapped the referendum.

China will bail out Europe

Towards the Chinese Century and world domination:

China has said it is willing to bail out debt-ridden countries in the euro zone using its $2.7trillion overseas investment fund.

In a fresh humiliation for Europe, Foreign Ministry spokesman Jiang Yu said it was one of the most important areas for China’s foreign exchange investments.

The country has already approached struggling European countries with financial aid, including offering to buy Greece’s debt in October and promising to buy $4billion of Portuguese government debt.

‘To have any discernible effect China will have to buy a lot more than 5billion euros if they expect to have any impact on the negative sentiment surrounding Europe,’ said Michael Hewson, currency analyst at CMC Markets.

China’s astonishing economic growth has put it on track to overtake America as the world’s economic powerhouse within two years, a recent report claimed.

But experts believed still be some years before America’s leadership role is really challenged – largely because Beijing has given no indication it is ready to take on the responsibility of shepherding the world’ economy.

This foray into the future of the euro could be a signal from Beijing that it is ready to change that perception.

via Fresh humiliation for euro zone as China says it will bail out debt-ridden nations | Mail Online.

Lessons from Ireland’s economic collapse

Ireland may have saved civilization at one time, but now Ireland may be pulling down the European economic system.  Robert Samuelson explains what is going on with the Irish economic collapse and the European bailout of yet another country in the Euro-zone:

That Ireland, after Greece, has come to grief is ironic. Until recently, it was admiringly dubbed the Celtic Tiger for emulating Asian countries in attracting foreign investment – Intel and others – and achieving rapid export-led growth. From 1987 to 2000, annual economic growth averaged 6.8 percent; unemployment fell from 16.9 percent to 4.3 percent. But then solid growth gave way to a housing boom and bubble whose collapse left Irish banks awash in bad loans.

One cause was easy credit occasioned by the euro. With its own currency, Ireland could regulate credit. If it seemed too loose, the Central Bank of Ireland could raise interest rates. Adopting the euro meant Ireland surrendered this power to the European Central Bank (ECB), which set one policy for all euro countries. The ECB’s rates, though perhaps correct for France and Germany, were too low for Ireland and some others. Moreover, financial markets pushed rates on government bonds of euro countries down to lower German levels. In 1995, Ireland’s rates were more than a percentage point higher than Germany’s; by 2000, they were almost identical. . . .

So now the reckoning. In Ireland, the burst housing bubble left a massive budget deficit and lifted unemployment to 14 percent. Most European economies suffer from the ill effects of some combination of easy money, unsustainable social spending and big budget deficits. Countries are interconnected, so there are spillover effects. European banks – led by British, German, French and Belgian banks – have $500 billion in loans and investments in Ireland, reports the Financial Times. Large losses could snowball into a broader banking crisis.

Europe’s challenge is no longer just economic. It’s also social and political. Cherished values and ideals are under assault. The euro, intended to nurture unity, has bred discord, as countries assign blame and argue over sharing costs. The social contract is being rewritten, with government benefits and protections being cut.

via Robert J. Samuelson – In Ireland’s debt crisis, an ominous reckoning for Europe.

A single currency set by a central authority, indifferent to individual country’s economy sounds like an experiment that didn’t work.  This is another kind of argument for federalist-style de-centralization.


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