The Naïve Belief in Punting

Europe and America blame one another for failure to act in the economic crisis. Policies on both sides of the Atlantic have the identical problem.

Germany sits in the dock. U.S. newspapers propagate the narrative that the debt crisis in the eurozone currently poses the greatest danger to the global economy and is the reason the recovery can’t get started. Germany could negate the risk if it would finally abandon its opposition to adequately funded bailout plans.

It sounds similar to Obama describing a telephone conversation he had with Chancellor Angela Merkel: He advised her to act decisively. Treasury Secretary Tim Geithner warned his European colleagues with the same advice almost daily. Did Germany want to bear the blame for Obama’s failure to be re-elected because the economy hadn’t recovered? Meanwhile, America’s debt crisis is scarcely mentioned in the U.S. media. Many Americans display an astounding degree of amnesia. In retrospect, the Washington Post indicated that market turbulence in July and August was mostly due to the euro crisis; the real reason for the market jitters was the congressional fight over raising the statutory debt limit.

But now Merkel has decided to bounce back. It’s not right, she said at the annual IG Metall labor union conference, for others to demand that Europe act decisively when they are in no position to do likewise, whether regarding a transaction tax or debt crisis management. Everyone recognized she was referring to the United States and Obama. Playing the blame game was hardly likely to calm the markets, she said. Obama and Geithner would be well advised to keep their opinions to themselves.

The United States is a poor adviser

Hardly a single European would be proud of how their governments have handled the euro crisis. But the United States is a poor source of advice since they can’t even get their own debt crisis under control. That, plus they have no patience with and little understanding for how the European Union and the eurozone function.

The expectation that governments can overcome such crises quickly if they act decisively and objectively is naïve. Politics and economic markets follow a different logic and have different constraints. It could be that markets have known for a year that cutting Greece’s debt was unavoidable. According to economic logic, it’s always best to do the unavoidable immediately. But politicians have to determine who bears which burdens and which banks will require additional support to avoid going broke. And pressure has to be maintained to ensure that Greece and other nations getting assistance don’t use that assistance to put off making necessary reforms. All that takes time — not months, but years — even if all runs smoothly.

From the outside, it all looks like an awkward muddling through. But that’s the European Union principle: muddle through from compromise to compromise. America does no differently with its debt. The National Commission on Fiscal Responsibility scheduled to meet this fall will put off any painful cuts until after the 2012 elections. There’s no magic bullet that can make debts disappear. It takes years to pay them down — here as well as there.