This morning Nobel prize-winning economist and columnist Paul Krugman is worried about Europe:
The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis.
Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.
On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing.
The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.
The remainder of the column is devoted to a defense of generous social spending by European countries and a consideration of the EU’s phlegmatic response which he attribute’s to Europe’s structural weakness.
I think there’s a closer relationship between Europe’s social programs and European leaders’ timidity in taking active steps to deal with Europe’s financial and economic problems than Dr. Krugman allows. For nearly a century Americans having been pulling Europeans’ onions out of the fire. Europeans’ present peace and security as well as their generous social programs are based on American military might. This has had the consequence you might expect: the infantilization of Europe. Basically, it’s a continent full of free riders.
The European leaders are perfectly willing to let us shoulder the load for as long as we’re willing to do it. And they’re most likely right: we’ll probably do the heavy lifting.
What makes it all the better from the European perspective is that they can blame us while we’re doing it. Some of that blame is undoubtedly well-deserved but not completely. I think that European bankers were responding to the same incentives as their American counterparts in much the same way.
Infantilized Europe is a theme I’ve harped on since I shot a documentary there five years ago. They didn’t create a united Europe, we did, by keeping the Soviets at bay and by providing security through the substitution of American forces for those of Germany, France and Britain. By our (very expensive) presence we made war in western Europe impossible for the first time in history. They are the often ungrateful teenagers of the 21st century.
Keep in mind that there are other incentives that blur with this. The Germans, for example, are paranoid about inflation, and also want to prevent anything that might undermine the Euro. At the same time, as others have pointed out, the amount of automatic stabilizers – like unemployment insurance – relatively higher in terms of their states.
Sort of. France chafed at this for a long time, building their own nuclear weapons and staying out of the NATO command structure – and in any case, they’ve kept their military around to do things like interventions in North Africa and so forth.