The economic will follow the political, perhaps:

“But even more profoundly, the sudden electoral shift in Spain has revived stalled talks on the European Constitution and have made consolidation of a Eurostate able to counterbalance US power far more likely.”

Long-term such a change in direction would have dramatically more economic impact than ECB rate fiddling.

The economic consequences are likely to be more long-term, as the appeasement and dhimmitude of the Spaniards will only create more Islamic terrorism.

http://www.faithfreedom.org/forum/viewforum.php?f=35

Hooboy! The translation to Jean-Claude Trichet’s coded language, for all you Americans and anti-Americans alike, can be summed up as this:

The first stage of the rocket of economic recovery has ignited, because the US economy is on the rebound. The second stage has ignited, as European domestic investment has increased, because Europe’s own capitalists see that the US economy is on the rebound, thus fueling EU exports, and the key to EU economic recovery.

The third stage of the rocket is faltering, because “First”: the cost of EU labor is still too high. “Second”… the politicians were slow to grasp the significance of this, and the necessity for reform, and the media delivers this message to the public when it’s way too late to do any good, and “third” - the public doesn’t want to spend money because they’ve lost confidence in the fact that the EU domestic economy is not recovering, because the media delivered the message - that the cost of EU labor (the welfare state) is still too high - too late, and that any reforms now would be too late to affect any further changes in the economic landscape.

But “we, on our side” in the ECB (as opposed to the politicians, who don’t have the balls to confront labor, and other advocates of the welfare state), still trust in the price stability due to the American recovery, and will do our best to keep prices in line, despite the fall in value of the US dollar, making EU labor even more expensive.

So y’all EUers can “trust us” and “invest and consume with full confidence”.

That is about as reassuring as a transcript of a Calvin Coolidge speech delivered by Jimmeh Carter.

When will Europe decide to become a real player on the economic field, instead of waiting for a free ride on the backs of the American people?

“When will Europe decide to become a real player on the economic field”

Unfortunately RSN you have, as seems to be your custom, missed the main point.

The underlying reality is that neither Europe nor the EU are destined to be the real players in the big match that is to come. The key players to watch here are this seasons ’revelations’: India and China.

The EU and the US models are in big trouble for different reasons. The US model seems to be foundering on the consequences of the short sighted decision to allow the dollar to become the world reserve currency. The eurozone is experiencing ’extreme discomfort’ due to the equally misguided attempt to avoid reform of the whole system and instead try to replace the dollar with the euro.

The EU has in addition a much more acute ageing problem than the US, but even on your side of the pond pensions and social security seem to be threatened, at least if I am to believe Sir Alan Greenspan.

The key quote from Trichet is this:

“This late and brutal discovery could have a negative impact on confidence. Had the public been more aware of the underlying problems, the reforms, when decided upon and implemented, would have increased confidence.”

Whilst I disagree with much of his diagnosis - he still thinks inflation is the real danger, I go with Bernanke, price stability would be a better objective, ie trying to avoid deflation - I think this warning is very important.

I would take two issues: outsourcing and terrorism. In both cases we have policies which are not adequate to the task (on either side of the pond). We have lulled ourselves into thinking the poor can stay poor forever, and are thus not prepared for the global redistribution shock that is coming. And we are applying policies which in their one-sideness seem to be increasing and not reducing terrorism.

So one day people are going to wake up to this, and the biggest danger is that they feel without protection and panic. This is what represents the fundamental economic danger, and here Trichet is absolutely right. Of course if you simply try to reduce this to a point scoring EU-US football match operation, if and when the show does go-off you won’t understand very much.

Two parting shots: “the cost of EU labor is still too high”. This is an extraordinarily complex topic, but just let me say that the “cost of US labour is too high” too when compared with India, China or Bulgaria - obviously your wages are higher than ours and you do more or less the same work stateside as we do here. So let me get this straight: should we be reducing wages significantly on both sides of the Atlantic to get them into line with the new global reality? Is that what the US President who would win your backing should be advocating - wage cuts to overcome the sluggishness in the labour market?

And lastly:

“the US economy is on the rebound”,

Don’t take this too much for granted. I don’t. And the US stock markets seem to be thinking long and hard about this right this moment.

“and have made consolidation of a Eurostate able to counterbalance US power far more likely.”

Unfortunately Patrick this is not my reading at all.

Edward,
that particular phrase is not where I’d personally put the emphasis, but I quoted the paragraph in its entirety rather than edit the last sentence to fit my particular tastes.

more specifically, the Economist article quoted by Nathan had this:

But the new Spanish government may influence the [E.U.] constitution in other ways. The Socialists favour pan-European tax harmonisation, for instance; one more reason for Mr Blair and the British to regret the passing of José María Aznar.

Changing the tax code can change the economic situation far more profoundly than interest rate changes

Edward, fair enough. But I still see your criticism as an attempt to equate the status of the US and EU, when it still seems that the EU has allowed itself to become dependent on the US, to the detriment of both.

India and China will indeed be the key new players in the field, but I see the US as far more flexible in accommodating these new entrants than the EU. The outsourcing debate is all the rage now, but there’s precious little that can be done to stop it, as businesses will follow their inclination to maximize the bottom line and pursue outsourcing. It’s just fodder for the campaigners at the moment.

I certainly would contest the notion that Trichet did not refer to the US economy being on the rebound when he said “recovery most often starts with net exports”. That has been the traditional mode for European recoveries in the past.

I look at the labor situation in the US, and I find too much hand wringing going on… in Europe. Back in my school days, we were taught that 5% unemployment was considered full employment. So if we hover now at 5.6 or 5.8, we’re still about .8% above full employment.

When I mentioned the cost of labor in the EU, I specifically had certain employer costs in mind, due to the rigid labor laws, - not wages. So a clarification is in order.

As to the stock market at this moment, well, as you know, no one has tea leaves to read on that, least of all European naysayers who are adverse to giving the market a dominant role in their lives.

In terms of the fear factor affecting economies, I tend to doubt Trichet had terrorism on his mind when he made his comments. I think you are putting your own spin on that one. Terrorism, - and the approaches in fighting it - are viewed in a distinctly different way on the two sides of the pond. I don’t want to ennumerate all of them, but I would like you to mull on this: the aggressive US reaction can be seen as the right stance to take, if we were to have the US economy get back on the track of recovery, following a debilitating attack. That’s the difference in spirit between Americans and EUers. Americans must go and take action - whether wisely or not - in order for economic confidence to survive. The EU stance of absorbing blows and trying to minimize the rattle is simply not an option for American economic confidence.

I share your views about India and China. I’m very optimistic about American-Indian relations. I’ve worked with Indians in Silicon Valley and I’m convinced that, in time, the two nations will be drawn more together, despite differences in the past. But I do worry about China, and the immense cultural gap. The common language of money is certainly understood, but that is where similarities end. There’s no sense of partnership when one deals with China, while Indians seem to fully understand the necessity of give and take for partnerships to survive.

RSN,
I look at the labor situation in the US, and I find too much hand wringing going on… in Europe. Back in my school days, we were taught that 5% unemployment was considered full employment. So if we hover now at 5.6 or 5.8, we’re still about .8% above full employment.

If 5.0% is truly full employment, then how do you explain the four year stretch between ’97 and 2001 when the U.S. unemployment rate was below 5% ?