Bloomberg
June 6, 2012
Four years after the onset of the Great Recession, a second and possibly worse global slump is starting to seem possible. If this happens, governments won’t be able to say they were taken by surprise. It will happen because governments have frozen in the face of hazards that are well understood and readily avoidable.
It’s hard to say whether the policy paralysis is worse in Europe or the U.S. I give the edge to Europe, where the failure of leadership has been more thorough and sustained. Still, the difficulties in the U.S. are easier to overcome, so neglecting them is more boldly incompetent. The country’s politicians, busy campaigning, have effectively said they’ll get back to us, maybe, after November’s elections. That’s audacious.
It has been plain for months, if not years, that the European Union needs collective monetary stimulus and some measure of debt mutualization to stabilize its economies. You would think neither would pose much of a test for an association of nations dedicated by treaty to “ever closer union.” Yet trying to avoid these steps has inflicted shattering recessions on several EU countries and worsened a manageable crisis of confidence to the point where it might destroy the entire euro project.
Europe’s central bank has been flexible in providing liquidity to the euro area’s banks, but in setting interest rates it continues to worry more about the distant threat of inflation and arcane constitutional proprieties than collapsing output and employment. On explicit debt mutualization, the EU has so far done nothing. Germany and others have opposed the crucial step of issuing jointly guaranteed euro bonds.
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