EUROPE'S double dip recession threatens our recovery. The fact that they are in recession again, after implementing the drastic, conservative fiscal policies of their right-wing political parties should be a warning to the American electorate of what will happen to our economy if the repiglicans and tea-baggers win the presidency and Congress this year. From HuffPost.....
Europe is in recession.
Britain's Office for National Statistics confirmed today (Wednesday)
that in the first quarter of this year Britain's economy shrank .2
percent, after having contracted .3 percent in the fourth quarter of
2011. (Officially, two quarters of shrinkage make a recession). On
Monday Spain officially fell into recession, for the second time in
three years. Portugal, Italy, and Greece are already basket cases. It
seems highly likely France and Germany are also contracting.
Why should we care? Because a recession in the world's third-largest
economy, combined with the current slowdown in the world's
second-largest (China), spells trouble for the world's largest.
Remember -- it's a global economy. Money moves across borders at the
speed of an electronic impulse. Wall Street banks are enmeshed into a
global capital network extending from Frankfurt to Beijing. That means
that notwithstanding their efforts to dress up balance sheets, the
biggest U.S. banks are more fragile than they've been at any time since
2007.
Meanwhile, goods and services slosh across the globe. If there's not
enough demand for them coming from the second and third-largest
economies in the world, demand in the U.S. can't possibly make up the
difference. That could mean higher unemployment here as well as
elsewhere.
What's the problem with Europe? Don't blame it on the so-called "debt
crisis." There was no debt crisis in Britain, for example, which is now
experiencing its first double-dip recession since the 1970s.
Blame it on austerity economics -- the bizarre view that economic
slowdowns are the products of excessive debt, so government should cut
spending. Germany's insistence on cutting public budgets has led Europe
into a recession swamp.
German Chancellor Angela Merkel, who has led the austerity charge,
and other European policy makers who have followed her, have forgotten
two critical lessons.
First, that the real issue isn't debt per se but the ratio of the debt to the size of the economy.
In their haste to cut the public debt, Europeans have overlooked the
denominator of the equation. By reducing public budgets they've removed a
critical source of demand -- at a time when consumers and the private
sector are still in the gravitational pull of the Great Recession and
can't make up the difference. The obvious result is a massive slowdown
that has worsened the ratio of Europe's debt to its total GDP, and is
plunging the continent into recession.
A large debt with faster growth is preferable to a smaller debt
sitting atop no growth at all. And it's infinitely better than a smaller
debt on top of a contracting economy.
The second lesson Merkel and others have overlooked is that the
social costs of austerity economics can be huge. It's one thing to cut a
government budget when unemployment is low and wages are rising. But if
you cut spending during a time of high unemployment and stagnant or
declining wages, you're not only causing unemployment to rise even
further -- you're also removing the public services and safety nets
people depend on, especially when times are tough.
And with high social costs comes political upheaval. On Monday,
Netherlands Prime Minister Mark Rutte was forced to resign. U.K. Prime
Minister David Cameron is on the ropes. The upcoming election in France
is now a tossup -- incumbent Nicolas Sarkozy might well be unseated by
Francois Hollande, a Socialist. European fringe parties on the left and
the right are gaining ground. Across Europe, record numbers of young
people are unemployed -- including many recent college graduates -- and
their anger and frustration is adding to the upheaval.
Social and political instability is itself a drag on growth, generating even more uncertainty about the future.
What European policy makers should do is set a target for growth and
unemployment -- and continue to increase government spending until those
targets are met. Only then should they adopt austerity.
What are the chances that Merkel et al will see the light before
Europe plunges into an even deeper recession? Approximately zero.
The danger here for the United States is clear, but there's also a
clear lesson. Republicans have become the U.S. party of Angela Merkel,
demanding and getting spending cuts at the worst possible time -- and
ignoring the economic and social consequences.
Even if the U.S. economy (as well as President Obama's reelection
campaign) survives the global slowdown, we're heading for a big dose of
austerity economics next January -- when drastic spending cuts are
scheduled to kick in, as well as tax increases on the middle class. But
the U.S. economy isn't nearly healthy enough to bear this burden.
If nothing is done to reverse course in the interim, we'll be following Europe into a double dip.
Robert Reich, Chancellor's Professor of Public Policy at Berkeley and former
Secretary of Labor, is the author of Beyond Outrage. His widely-read blog can be found at www.robertreich.org.
http://www.huffingtonpost.com/robert-reich/europe-recession-_b_1452743.html?utm_source=Alert-blogger&utm_medium=email&utm_campaign=Email%2BNotifications
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