Last week, Delve advised both Gov. Mitt Romney and President Obama to consider Europe’s spiraling financial situation as they think about future U.S. economic policy: Our markets - and thus our fiscal futures – are intertwined.
This week, as decisive Greek elections approach and leaders puzzle through how to structure a recently announced European Union-backed Spanish bank bailout, that advice seems even more salient.
But what about the rest of us? How should average Americans think about the crisis overseas? With market metrics fluctuating every minute – and ever-changing fiscal dynamics in each of the Eurozone nations – it can be tricky to know which stories to follow to stay current on the continent's struggles. And though the U.S. is mired in its own fiscal crisis, it’s tough for most Americans to comprehend the scope of the European disaster - how it’s really impacting the U.S. market, and what a parallel situation would look like on American soil.
Two recent articles help illuminate the most important Eurozone yarns to follow, and how the euro crisis could stunt economic recovery in the U.S. Douglas Rediker, a senior fellow in New America’s Economic Growth Program, sifted through the mass of euro-headlines and came up with a list of 12 crucial developments to monitor in Foreign Policy. And Newsweek’s Niall Ferguson explained how the crisis could impact the presidential election, and what the European calamity would look like in the States.
First, a few of Rediker’s suggested threads to track: the rising influence of extremist political parties in Greece, Germany, France and the Netherlands, German domestic politics, a possible Chinese asset “shopping spree”, and, notably, an absence of Euro-talk on U.S. presidential campaign trail:
“The White House is enormously concerned about a European implosion damaging the fragile U.S. economy and taking President Barack Obama's reelection chances with it. The Federal Reserve has played an enormously important and somewhat unsung role in Europe, keeping large U.S. dollar swap lines open for the European Central Bank that have been crucial for supporting banks in the European periphery. But the Obama administration maintains a public stance that the Europe crisis is largely for Europe to solve on its own…
In any case, despite Obama's speech last Friday, June 8, you won't hear much about Europe on the campaign trail. The president will limit talk about it for fear of highlighting America's inability to solve a major economic crisis with its European brethren, while Republican presidential candidate Mitt Romney doesn't want to appear to give the president an "out" on responsibility for any setbacks in the U.S. economy. All in all, Washington will be speaking softly, but without any stick to back it up.”
But perhaps there’s another reason President Obama and Mitt Romney will refrain from sprinkling Eurozone references into campaign speeches: According to Ferguson, “Most Americans are bored or baffled by Europe. Try explaining the latest news about Greek politics or Spanish banks, and their eyelids begin to droop.”
Ferguson slaps the electorate awake and casts the crisis in “American terms”:
"Imagine that the United States had never ratified the Constitution and was still working with the 1781 Articles of Confederation. Imagine a tiny federal government with almost no revenue. Only the states get to tax and borrow. Now imagine that Nevada has a debt in excess of 150 percent of the state’s gross domestic product. Imagine, too, the beginning of a massive bank run in California. And imagine that unemployment in these states is above 20 percent, with youth unemployment twice as high. Picture riots in Las Vegas and a general strike in Los Angeles.
Now imagine that the only way to deal with these problems is for Nevada and California to go cap in hand to Virginia or Texas—where unemployment today really is half what it is in Nevada. Imagine negotiations between the governors of all 50 states about the terms and conditions of the bailout. Imagine the International Monetary Fund arriving in Sacramento to negotiate an austerity program.
This is pretty much where Europe finds itself today. Whereas the United States, with its federal system, has—almost without discussion—shared the burden of the financial crisis between the states of the Union, Europe has almost none of the institutions that would make that possible."
The bottom line: Americans don’t understand why they should care about the tumult overseas, and politicians don’t seem to want them to. Delve will keep tabs on all sides as the situation continues to unspool.