Americans Set to Learn Wrong Lessons From the Euro Crisis as Fiscal Cliff Looms
The Greek government has approved its 2013 budget by a vote of 167 to 128. The passing of the budget was required in order for Greece to continue receiving bailouts from international lenders. Thousands protested the budget outside the Greek Parliament in Athens while inside left-leaning politicians argued for the budget to be rejected.
The budget anticipates a contraction in the economy, a growth in the national debt, and cuts worth 9.4 billion euros. A rather important assumption made in the budget is that Greece will be granted two additional years to meet its deficit reduction goals, something that has yet to be formally approved by international lenders. A report from the International Monetary Fund, European Commission, and the European Central Bank (collectively referred to as the 'troika') on Greece's reforms has not been completed.
The recent budget debates and the protests leading up to the vote have highlighted tensions that have been growing in Greece. Anti-bailout left-leaning parties and the xenophobic nationalists Golden Dawn are enjoying increased popularity. In the case of Golden Dawn some see no reason to think that the surge in popularity will diminish. From Reuters:
Political analysts see no immediate halt to its meteoric ascent. They warn that Golden Dawn, which denies being neo-Nazi despite openly adopting similar ideology and symbols, may lure as many as one in three Greek voters.
"As long as the political system doesn't change and doesn't put an end to corruption, this phenomenon will not be stemmed," said Costas Panagopoulos, chief of ALCO, another independent polling company. "Golden Dawn can potentially tap up to 30 percent of voters."
What is especially worrying about the situation in Greece, and the eurozone more broadly, is that some Americans are claiming to have learned all of the wrong lessons from the fiasco. From Bloomberg:
When the housing bubble burst in 2006, U.S. policy makers looked to Japan for clues about what to do -- and not do -- in response. Now their attention is shifting to Europe as America gets set to follow that region with a concerted attack on its budget deficit.
Among the lessons being drawn: Don't put off budget action until the financial markets demand it. Big, immediate cuts aren't always the best way to reduce deficits. And central bankers should be ready to try to offset the economic impact of any fiscal contraction.
Elsewhere in Europe The Spanish Banking Association has put a two-year freeze on house evictions after a woman killed herself shortly before she was to be evicted from her home.
Unsurprisingly, it looks like Iceland, which was hit hard by the financial crisis but enjoyed a relatively speedy recovery, is not in a hurry to join the European Union. Unfortunately, it is a little too late for Iceland's lessons to be learned by American policy makers who seem intent on sending the U.S. on a path more familiar to the Greeks.
