Once again (see WWI, WWII), we will get dragged into Europe’s mishegas and suffer for it. In a global economy, the Atlantic Ocean really is just a pond, or maybe just a puddle.
From “Europe’s Economic Suicide,” Paul Krugman, NYT:
“The question then was whether this brave and effective action [the European Central Bank’s making money available to banks late last fall] would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.
“But they didn’t. Instead they doubled down on their failed policies and ideas.
“Consider the state of affairs in Spain, which is now the epicenter of the crisis. Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent…, and the youth unemployment rate over 50 percent. This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher.
“[T]he prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity.
“This is, not to mince words, insane. Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.
“The Continent needs more expansionary monetary policies, in the form of a willingness…on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it.
“What we’re actually seeing, however, is complete inflexibility.
“Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff.” Emphasis added.
The lamps are going out all over Europe, and we shall not see them lit again in President Obama’s first term, which may make it his only term. He’s not just facing Mitt, he’s facing Merkel.