American economy hostage to EU, King George’s (III) revenge

by YankeeJim | September 28, 2011 at 03:30 am

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King George’s (III) revenge

While the Mad King lost his battle to control America, the EU has a chance to change America's destiny, at least in the short run. If the EU can collectively manage to rescue the European economy, beginning by controlling Greece and its penchant for excess and corruption, Obama might ride the wave to a second chance.

As we are beginning to understand, economic forces are global. Under the present circumstances, all nations are inextricably linked by the banking system. The amount of discretionary control that nations have over the large waves may be proportionately small.

Sale the ship into the wave, bow first is the best course. Manage government budgets within a limited capacity to govern as a percentage of GDP. Women, children, seniors first. Man the lifeboats.

“Depending on which account you read, last night Chris Christie announced that he either was going to enter the presidential race, or that he definitely wasn't. On Twitter, it was quickly dubbed "the Rashomon speech." I'm told that Sarah Palin also made noises. This is the comforting, familiar narrative of the 2012 election: it's about the candidates, and their ideas, and their records. But here's the increasingly undeniable truth: the 2012 election is likely to be decided by the actions a handful of European leaders take over the next couple of weeks.

For a country used to being in the driver's seat, America is in a weird place right now. Over the next year, and perhaps over the next few years, the most important question for our economy, and thus the most important question for our political system and our upcoming elections, is what happens in Europe over the coming days and weeks.

The European Union is a big economy. Bigger than ours, in fact. In 2010, we exported $240 billion worth of products to the EU, and imported $320 billion. And our other major trading partners -- Canada, Mexico, China, etc -- are similarly interlinked with the European economy. So just as a financial crisis that began in the United States was capable of creating an economic crisis across the rest of the world, a debt crisis that begins in the European Union has plenty of channels through which it can shatter an already fragile global economy. (For a primer on Europe's debt problems, head here.)

It doesn't have to happen, of course. Europe has the resources to get through this crisis. But it doesn't have the governance structures necessary to do so, nor is it clear that it has the political will needed to create them. At the moment, Greece is teetering on the edge, and so things could get very bad, very quick. And if they do, our economy is going to get very bad, very quick -- and so will President Obama's reelection chances. If Europe somehow vastly exceeds the market's expectations and emerges with the strong fiscal union that everyone knows they can form but no one thinks they will create, it could do more to restore global confidence and kickstart an economic recovery than any single piece of legislation we can pass here, and that could do more to secure Obama's reelection than any message David Plouffe can think up.”