Remember To Keep Your Eye On Europe

by Stuart Shapiro

Like the nagging professor that I am, I remind (last nag was here) all faithful readers to the fact that the biggest factor in whether our economy slips back into recession (and therefore probably the biggest factor in next year’s election) is out of our control.  It depends on the fate of the Euro zone.  The latest news (now a week old) is an agreement by 26 of the 27 Euro zone countries to practice greater fiscal austerity (to Americans unfamiliar with the term it means making sure deficits are under control by compromising on taxes and spending!).

Chancellor Angela Merkel of Germany defied skeptics and laid the groundwork for a deeper union that she said rights the mistakes of the euro’s birth and puts integration on a stable path for the long term. In the process, she forced German fiscal discipline on Europe as the prescription for the ills that afflict the region.

Of course, while many agree that the Mediterranean countries could use some discipline, the question remains what to do about their currently collapsing economies.

Yet even as the cogs of the European agreement were being fitted into place, President Obama issued his sharpest warning yet about the German-led solution. He said the focus on long-term political and economic change was well and good, but emphasized that failure to react quickly and strongly enough to market forces threatened the euro’s survival in the coming months.

Germany and its allies accuse the president of being concerned with his re-election.  Well yes, but a collapse of the world economy while austerity measures are slowly put in place is in no one’s interest.  To be honest, I don’t know if there is a right answer here.  And that scares me more than Michele Bachmann becoming president.  OK, almost as much.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.