Washington Boxes, Europe Groans

As a result of the incessant political wrangling in Washington, the United States is conducting a policy at Europe’s expense, which is currently suffering from a strong euro. German Chancellor Merkel is perfectly entitled to speak out against this, as well as against public display of American protectionism.

German Chancellor Angela Merkel has schooled the United States, and U.S. President Barack Obama in particular, on how to do national politics in a civilized and constructive manner.

Just like the American president, Merkel managed to secure a major victory during the elections. But the German chancellor didn’t attempt to force this victory down her opponents’ throats. This is what Obama did to the Republicans during the final round of budget negotiations.

No, the chancellor showed the Social Democrats a lot of generosity with respect to the formation of a new coalition — too much generosity, according to some members of the political right. However, regardless of whether this ultimately came at either a high or a reasonable price for Merkel, one can at least expect the third Merkel administration to function. The same cannot be said for the Americans. Bonus points go to Germany.

The reconciliatory stance that Merkel has taken toward the Social Democrats has provided her with sufficient moral superiority to warrant teaching Washington a lesson about the advantages of the use of compromise and civilized conduct.

All of this, however, concerns a lot more than a game of morality with an educational value. Merkel has every right to demand Washington cease its resentful politics, because Europe is being dragged down with it and must now share the costs in the form of a more expensive euro. And it is this euro that is vital to Europe.

The Federal Reserve’s hesitation to gradually cut off financial support (also called tapering) as a result of the arguing in Washington has caused the euro to surge to the point where Europe is now saddled with the problem of disinflation, resulting in slow economic recovery. Should the Fed initiate tapering, it would lead to an increase of the American interest rate, as well as an increased flow of foreign capital to the United States.

The Federal Reserve held back in September. It did not want to start withdrawing funds in a time of economic weakness. In addition, it feared the economic consequences the budget negotiations would have, as it seemed that these would not bode well. This fear was justified. The world’s largest economy only just managed to avert a fiscal deficit, but this did not stop the government from shutting down for several days, and the economy took an unwelcome dip.

Don’t shoot the Federal Reserve, aim for the political mess in Washington

The Federal Reserve now awaits an equally precarious situation. The budget negotiations that took place in January may cause the Fed to once more set out to cut down on funding in a time of economic weakness, which it may decide to commence doing this month. As such, the Federal Reserve may yet again choose to postpone tapering until March — unless the upcoming economic figures prove to be rock-solid, which is not very likely.

All of this dithering is giving the euro that unwelcome upward pressure.

What Merkel ought to say is that the United States is conducting a policy at someone else’s expense and that Europe has every right to object — just as it has done against public display of American protectionism.

The incessant wrangling in Washington may not have any protectionist intentions; the result, however, is protectionist. And isn’t it the result that counts?