Ah, Europe. Love em to death - in fact, some of my best family and cats are European. But Chris has been saying for a long time that European governments like to think of the economic crisis as an American problem that won't really affect them. I'd
written the other day about the French Finance Minister scolding the US about being so late to the stimulus package game, and thus implying that France and Europe have the higher ground when it comes to confronting the economic crisis, and about how the minister suggested that the crisis was really an American problem.
It seems Nobel laureate in economics Paul Krugman n'est pas d'accord.
Krugman's article today walks you through Europe's handling of the crisis - shorter Krugman: they haven't done much, and have done a hell of a lot less than we have - and notes, repeatedly, that Europe's economic slump will be "at least" as bad as the US'. Krugman says that the European Central bank has refused to low interest rates sufficiently, and that monetary integration (adopting the Euro) has taken away the ability of individual countries to devalue their currency. What about stimulus? The European governments have spent far less, as a percentage of GDP, than we have, but just as bad, they have little incentive to spend any more. Because their economies are so interwoven, no government wants to be the lone actor paying for everyone else's stimulus (since France's stimulus, for example, would help Italy and Spain and Greece and everyone else in the EU). The other countries would be freeloaders. So, better to do nothing than offer your neighbors a little goodwill, or worse - eh gads! - actually put that "European nationality" to work and carve out a stimulus package with requirements for each EU country.
And of course, this affects us too. All of our economies are intertwined. A weak Europe will slow our recovery just as much as a weak American economy will slow the world. It seems the French Finance Minister, along with her Germany counterpart, are hell-bent on taking the rest of us down with them. I guess that's one way to reclaim your global leadership role - being at the front of the pack as we all plunge down the abyss.
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