The financial crisis in Europe does matter. It is much more important to each American than the Arab fight for freedom or our own daily political theatrics. While the media churns out stories on guns, freedom fighters and political buffoonery, our economic future is being played out across the Atlantic. Mark Twain once noted that while history does not always repeat itself, it does rhyme.
The financial markets often make judgments on corporations. It is a given in a capitalist economic system. When performance is good, corporations flourish. When performance is sub standard, the stock goes down, products go unsold, bankruptcies are filed and executives fired.
In normal times, sovereign countries do not undergo the same scrutiny as corporations. However, 2011 will be remembered as the year when financial markets judged countries as often as corporations. Established western nations, are no longer too big to fail. Questions on the liquidity and the credit worthiness of sovereign countries have come into play. Market forces have eclipsed elections, international organizations and parliamentary debate. It is now the determining factor on what the political economic and social future of the oldest, most revered European nations will hold.
Italy and Greece have lost political leaders to failed governments and replaced them with economic technocrats. The same has happened in Spain through an election. All of this to please the financial markets and to stop the run on each country’s debt. The slightest hint of good or bad news from Europe, sends the markets up or down by hundreds of points.
What was once only a whisper in European capitals is now a given. Political and fiscal power will be relinquished at the national level so that the Euro Zone can survive. Polish leaders, in a country where fear of Germany is legendary, are practically begging the Germans to seize the moment and direct Europe away from the precipice. Legal and economic scholars are seeking shortcuts around laws, treaties, constitutional provisions and parliamentary procedures in order to impose stop gap measures. Preserving a credit rating trumps the slow business of democratic process. This top down decision making feels more like China than that of a western democracy.
The United States does not have the problems of Europe. We make our own through partisan brinksmanship. Our inability to reach a compromise between raising revenue and cutting the deficit has permitted the idiosyncrasies of financial markets to run the country in the absence of rational decision making. Our credit rating is lower, our President is stone walled and our Congress is a laughing stock.
A lesson to be learned from Europe’s dilemma is that there is very little time to spare between a plan of “just in time-just enough” and the inevitable “too little- too late.” As policy makers get further from the former and closer to the latter, the only course of action left becomes: “too much- right now.” This first lesson is exasperated by a second, that helps explain the escalating crisis in Europe. In global economics, changes take longer than anyone expected and then happen faster than anyone thought they could.
If the United States is to avoid Europe’s fate, we must act quickly. Policy makers that continue to take the minimal commitment to avoid immediate disaster will soon be behind the curve and forced into “too much- right now.” Whether the cause is lack of political will or an overriding political partisanship does not really matter. Without a decisive plan things will get worse, much worse. Finally, we will act from self preservation and possibly be forced to sacrifice democratic principles. The shame will be that only a short time earlier, action would have been clearer, more effective, not as expensive and less of a hardship on our citizens.
