3/26/09

There is much anticipation that there will be fireworks at the upcoming G-20 Summit in London next week over U.S. efforts to advance a global stimulus. Mirek Topolanek, the Prime Minister of the Czech Republic and President of the EU, heightened this expectation when he took to the floor of the European Parliament the day after losing a no-confidence vote and described U.S. stimulus proposals as “a way to hell.” But as other European leaders rejected his remarks, they are primarily a distraction from a broader convergence that will likely emerge at the summit. Common ground between the U.S. and Europe seems to be emerging, with both a recognition that more stimulus spending may be needed and some moves on the regulatory reform Europeans prioritize in the offing. The U.S. and Europe do have different priorities and perspectives, but summits exist precisely so that countries can work out differences and arrive at a common agenda.

Now the European debate over stimulus has entered American politics, with conservatives claiming European ambivalence toward stimulus spending undercuts Obama’s domestic economic plans, since even European “socialists” are opposed to his efforts.  In fact, the debate in Europe completely undercuts a generation of conservative false clichés about Europe. In calling Europe “socialist,” many conservatives seem completely unaware that Europe is very much a free market capitalist economy.  Its corporations compete fiercely and many of its leaders have a very conservative approach to economic management. Unlike American conservatives, many European conservatives, like Germany’s Angela Merkel, have actually imposed fiscal discipline and achieved balanced budgets. There are differences in approach between the U.S. and Europe, but these don’t fit conservative talking points.

Despite expectations of fireworks, U.S. – European perspectives are likely to converge at G-20 summit. Caretaker Czech Prime Minister Mirek Topolanek took to the floor of the European Parliament yesterday and attacked U.S. stimulus proposals saying they were the “way to hell.” Not coincidentally, the Czech opposition had been calling for greater stimulus from his government. Topolanek’s outburst has led to headlines in the United States and expectations that the G-20 summit could lead to a major public clash. But the EU response shows that those expectations are likely overblown. Immediately after making his speech Topolanek was chided and condemned by other European leaders. From the AP:  “Analyst Nicolas Veron, a research fellow at the Bruegel think tank, said Topolanek's view is not widely shared by EU leaders... EU Commission President Jose Manuel Barroso also said it was ‘not helpful ... to try to suggest that Americans and Europeans are coming with very different approaches to the crisis... On the contrary, what we are seeing is increased convergence,’ he told the parliament. Europe's resistance to the U.S. call for new stimulus measures is starting to weaken despite Germany's fierce opposition to any new spending program this year. French President Nicolas Sarkozy said Tuesday he is prepared to support the economy with a new spending package. EU officials say they can't rule anything out — even an EU-wide stimulus that could help nations like Ireland and Spain, which can't afford any extra stimulus.” However, the U.S. and Europe do have different priorities for the summit, with Europe arguing that establishing a new international regulatory framework is most important, while the U.S. prioritizes concerted efforts to expand global demand through stimulus funding. But both view boosting demand and expanding regulations as important. For instance, Germany has passed a stimulus package and Obama has expressed his support for expanded regulation. [AP, 3/25/09. Bloomberg, 3/26/09. Baltimore Sun, 3/24/09]

European economic attitudes toward the stimulus are exploding the false clichés of the American right. Responses to the crisis are confounding expectations of a tax-and-spend Europe.  Peter Brown of the Wall Street Journal opined that “During last year’s presidential campaign, Republicans warned that if Barack Obama became president, he would remodel America after the Euro-socialist consensus that dominates the European Union... European governments want their role in economic stimulus to be smaller than it is in the U.S. On the economic crisis, the EU, which more often draws disapproval than praise from Republicans, finds itself more aligned with the GOP thinking than that of the Democrats. As they say on TV, you can’t make this stuff up.” Unlike the conservatives in the United States, European conservatives like German leader Angela Merkel, actually practice fiscal discipline and are heavily focused on balanced budgets.  Bloomberg explains that “As leader of the center- right Christian Democratic Union, Merkel fought Germany’s last election campaign in November 2005 with a promise to balance the books by 2011. She almost reached that goal in 2007, when the deficit was 0.2 percent, and did even better last year, when the shortfall was 0.1 percent of GDP.” Nevertheless, Merkel, in what she described as “the hardest domestic decision I’ve had to take as chancellor,” conceded that a fiscal stimulus was necessary. Germany is currently injecting a stimulus of “82 billion euros ($110 billion) into the economy, the biggest stimulus package in Europe.” In fact, many of the economic problems plaguing European countries have been caused by irresponsible fiscal policy, relating to excessively low tax rates. RGE Monitor writes about Ireland’s low tax rates, “Given how much the shift in the structure of tax revenue has contributed to the fiscal problem, it seems evident that there must be a return to more stable sources such as personal income tax, VAT and excise taxes. And the late pre-crisis surge in government spending must be reversed.”  This has hurt the case for further stimulus as Germany fears rewarding bad behavior. Nouriel Roubini, the New York University economist, said, “The problem in Europe right now is that those who can afford it the most, like Germany, don’t want a greater fiscal stimulus because they are concerned about sending the wrong signal to countries that have been less disciplined.” [Wall Street Journal, 3/24/09. Bloomberg, 3/26/09. RGE Monitor, 3/01/09]

Contrary to American conservatives’ perceptions, the European Union is a decidedly free-market institution whose economic and political achievements support American business and security interests. Conservatives are investing intense effort in claims that Obama’s policies reflect European “socialism.” Senate Minority Leader Mitch McConnell of Kentucky said at CPAC, “Pushing back these efforts to basically Europeanize America will not be easy.” Yet GOP leaders and many American conservatives seem completely oblivious to the driving force behind the EU is free-market capitalism. The Economist notes that “EU membership binds national politicians into a set of essentially liberal, free-trading, internationalist standards... Its maddening complexity amounts to a permanent compromise between competing interests that also makes it a bulwark against extremism. That may not always make Brussels popular with voters. But it does make one thankful that the EU exists.” The magazine adds that “Astonishing as it may seem to British critics of Europe, in Brussels the chief complaint is that the dominant ideology of the European Commission, especially in the financial sector, is British-style liberalism.” Self-described Euro-skeptic Gideon Rachman  wrote in the FT, “If you compare Europe with most other bits of the world, it still looks pretty good – prosperous, peaceful, free, a little on the dull side. But part of the EU’s problem is that its main achievements do seem technocratic and boring. ‘Defend the single market’ is not the most inspiring of slogans. But the ‘four freedoms’ represent important rights: the right to live and work anywhere in Europe; the right to make a business deal without the government stopping you; the right to hop on a train to Paris or a plane to Madrid without being hassled at immigration. In the coming years, the real threat to these freedoms will come from national governments in a panic – not from the dreaded bureaucrats of Brussels. On the contrary, it will be up to an enfeebled European Commission to try to hold the line.” [CQ, 2/27/09. The Economist, 3/5/09. The Economist, 3/12/09. FT, 3/2/09]

What We’re Reading

New jobless claims rose to 652,000 last week, with more than 5.5 million people now receiving jobless benefits.  U.S. GDP fell 6.3% in the fourth quarter of 2008, the largest drop since 1982.  Japan’s exports fell by half in February.

Iran accepted the United States’ invitation to a conference on Afghanistan.

U.S. officials say that Taliban attacks in Afghanistan get help from Pakistani intelligence.  Despite these claims, the U.S. is allegedly working with the ISI to develop a new list of drone targets in Pakistan.  Meanwhile, a Pakistani government spokesperson said that Pakistan hopes the U.S. will reconsider the use of drone attacks in Pakistan.

The U.S. is taking an increasingly large role in Afghanistan, undercutting NATO.

North Korea prepares for its rocket test, despite warnings from the United States and South Korea.

A spate of bombings in Iraq, Afghanistan and Pakistan:  a car bomb in Baghdad killed at least 16.  A Taliban attack killed 9 policemen in Afghanistan.  A suicide attack in northwest Pakistan killed 11.

The Pentagon released a report finding an increase in China’s military strength.  China sharply criticized the report, saying it was a “gross distortion” and “interference.”

In Mexico, Secretary of State Hillary Clinton said that failed U.S. counternarcotics policies contributed to Mexico’s drug wars.

The U.S. vows to sustain the dollar’s dominance in response to China’s call for a new, IMF-controlled currency.  British Prime Minister Gordon Brown denies a G-20 split over stimulus measures.

Chinese investment falls in Africa, destabilizing the region.

An Oxfam report finds the U.S. aid program in Afghanistan deeply flawed.

Commentary of the Day

Timothy Garton Ash says that at the G-20 next week, there will be Europeans present, but no one speaking for a united Europe.  The Financial Times thinks that the Czech Republic’s poor EU presidency argues a semi-permanent EU president as was outlined in the failed Lisbon treaty.

Roger Cohen describes the “fierce urgency of peace” in the Middle East and lays out some possible starting steps.

Jehan Sadat looks at how the actions of her husband, Anwar Sadat, can be a lesson for today’s leaders in forging peace in the Middle East.

The Wall Street Journal analyzes the U.S. and China’s interactions over the dollar.

The LA Times applauds the Obama administration’s first step in combating drug violence in Mexico.