WASHINGTON (AP) — Europe's deepening debt crisis is echoed in the
United States by the inability of President Barack Obama and Congress to
strike a bipartisan deficit deal.
On both sides of the Atlantic,
leaders are having a hard time making tough, unpopular decisions. And
things come together only at the very last minute, if at all, while the
global economy hangs in the balance.
What happens in Europe is
important to Americans. It has already taken an economic toll on U.S.
exporters — from reduced consumer demand in Europe for their products
and from a rising dollar against the euro. U.S. stock markets have been
battered for months as the crisis spread from Greece to other
more-solvent economies, including Italy and Spain, and even taking a
toll on Germany's ability to sell its bonds.
The worse things get in Europe, the more likely the contagion could spread to the U.S.
Right now, the situation looks much graver overseas, with Europe teetering on the brink of a new recession.
With
their backs against the wall, and with some economists warning of an
imminent collapse of the euro, European leaders are racing to find a
grand bargain to keep their monetary union from fracturing. But time is
running out.
The United States isn't quite that close to the edge
of the cliff. Last week's failure of the so-called congressional
supercommittee to strike a deficit-cutting deal to lower future
government borrowing underscored that Congress is bogged down in
inter-party strife, likely meaning that no deal on jobs, spending and
taxes is likely until after next November's presidential election.
The
two parties were blaming each other for the deadlock. Republicans
slammed Democrat Obama for not doing more to prod an agreement.
And one top Democratic lawmaker even suggested that "the public cannot be totally absolved of responsibility."
"They
elected us," Rep. Barney Frank, D-Mass., senior Democrat on the House
Financial Services Committee said at a news conference Monday called to
announce his retirement after more than three decades. "Congress is not
some autonomous entity that parachuted through the dome," Frank said.
"We were elected."
There are multiple parallels between the crisis
here and the one in Europe, with procrastination and political
paralysis playing roles in both.
"It has to do with the fact that
politicians in both areas have taken what is an inherently manageable
problem and turned it into a crisis by their actions or lack of
actions," said Nariman Behravesh, chief economist with IHS Global.
"The
worry is that Europe will have what's referred to as a 'Lehman moment.'
That would be a problem for the U.S.," said Behravesh, referring to the
September 2008 collapse of U.S. investment banking giant Lehman Bros.,
which triggered a financial near-meltdown.
Finance ministers of
the 17 eurozone nations gathered at the European Union headquarters in
Brussels on Tuesday to urgently explore new radical proposals for
getting out of the debt crisis, including a plan in which the countries
would cede some of their fiscal sovereignty to a central authority.
In
Berlin, German Chancellor Angela Merkel said, "Our priority is to have
the whole of the Eurozone placed on a stronger treaty basis."
U.S.
stocks rose for the second day in a row on Tuesday, with the Dow
industrials up about 60 points in early-afternoon trading after rising
nearly 300 points on Monday, partly on hopes for a new breakthrough in
Europe.
On Monday, the Dow industrials rose nearly 300 points,
both on robust post-Thanksgiving spending in the U.S. and on new,
radical proposals for solving Europe's debt crisis.
Still, a
worsening crisis in Europe could undercut recent slightly improved
economic news in the United States, so closely tied are the two
economies.
The United States and the 27-nation European Union are
the world's top two economies, accounting for roughly half of all global
economic output and one-third of total world trade.
The closeness
of links between the two economies was driven home at a Monday meeting
at the White House between Obama and European Union officials that dealt
in large part with the European crisis.
"I communicated to them
that the United States stands ready to do our part to help them resolve
this issue," Obama said. "This is of huge importance to our own
economy."
He did not specify what that would entail. White House
spokesman Jay Carney earlier said that U.S. taxpayers shouldn't be put
at further risk, including by paying more into International Monetary
Fund coffers to help support various proposals that the IMF do more to
help rescue troubled European economies.
European Council
President Herman Van Rompuy said eurozone nations have already done a
lot to tackle the crisis with measures that "would have been
unthinkable" a year ago. "But we have to do more."
A recession in
Europe would first hurt U.S. exports to Europe. European countries would
probably buy fewer American goods and services. A moderate to deep
European recession would also probably drive up the dollar with respect
to the euro, making American products more expensive in Europe, and
striking a double blow to U.S. exporters.
Also, many U.S.
companies earn a lot of their profits in Europe. Those profits would
decline, probably forcing the U.S. companies to reduce their investment
in Europe and perhaps cut hiring in the U.S.
Some economists have
even suggested that U.S. labor markets are beginning to look more like
those in Europe, with unemployment remaining stuck at 9 percent and
nearly 6 million Americans out of work for more than six months. Europe
has long been plagued with chronic long-term joblessness and high levels
of youth unemployment.
In a report Monday, the Paris-based
Organization for Economic Cooperation and Development said the euro
crisis poses "a key risk to the world economy." It suggested European
decision-makers had moved too slowly in preventing the crisis from
spreading.
Despite stubborn unemployment, the U.S. economy is
still growing, with recent signs of improvement in manufacturing and
consumer spending. The U.S. also has some safeguards not enjoyed by
Europeans.
In the U.S., the federal government is a central authority over taxing and spending. Not so in Europe.
And
the 17 countries that use the euro can't print their own money, whereas
the U.S. Federal Reserve has shown itself willing and able to
effectively print money to help ease pressures on U.S. banks and to
stimulate parts of the economy, including the stock market.
"Europe
is in turmoil, the outcome is unknown," said Allen Sinai, chief global
economist at Decision Economics. "Right now, it's a work in progress.
Economic growth in Europe will be very weak for a very long time."