Another day, another round of bad news out of the eurozone, as the European financial crisis continues to escalate.
For once, however, the Europeans were matched for paralysis and futile gestures by the Americans. This morning, the chairs of the congressional “supercommittee”, charged after the debt ceiling stand-off earlier this year with finding bipartisan agreement on ways to curb the US deficit, admitted failure declaring “we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline”.
The statement bordered on surreal: “… as we approach the uniquely American holiday of Thanksgiving, we want to express our appreciation to every member of this committee, each of whom came into the process committed to achieving a solution that has eluded many groups before us. Most importantly, we want to thank the American people for sharing thoughts and ideas and for providing support and goodwill as we worked to accomplish this difficult task.”
They hoped Congress could “build on” the committee’s work. Perhaps they could start by building a spaceship back to planet Earth.
In the absence of agreed cuts, a schedule of across-the-board expenditure reductions will kick in from 2013. But Congressmen and women are already talking about stopping the automatic cuts, particular on defence spending. Plus ça change. In response to the committee statement, President Obama said he’d veto any efforts to stop the automatic cuts, much as he’d prefer “a scalpel, not with a hatchet”.
It’s hard to know where to start with the latest news from Europe. Ratings agency Moody’s — the world is in a fine mess when the wholly discredited ratings agencies possess more authority and insight than governments — suggested that France faced rising interest on its debt and slowing growth, a combination that might endanger its AAA credit rating. The Bundesbank lowered its forecasts to German growth to a negligible 0.5%. What was a crisis in the “south” in the Eurozone is spreading northwards. The UK government virtually conceded its plans to move out of deficit by 2014-15 would not be met, and Chancellor George Osborne looks set to join the Bank of England in significantly lowering UK growth forecasts.
The election of a conservative government in Spain — with forecasts of the inevitable round of austerity measures — has done little to curb the growth in Spanish bond yields. The World Trade Organisation forecast developed country export growth would fall sharply. Oh, and the Hungarians asked for EU and IMF help.
Oddly enough, financial markets did not have a good day.
The common themes on both sides of the Atlantic is politicians unable or unwilling to address either the demands of markets for certainty and control of the debt crisis, or of the needs of their constituents for jobs. The European countries that have pulled on the hairshirt as demanded by the the EU and the Germans face savage recessions that, as Moody’s points out in relation to France, place in doubt exactly the goal of austerity.
Many of these governments already face low levels of public support — not partisan support, but support for the fundamental political systems in which they operate. Their incapacity to respond effectively either to the financial crisis or the impact on employment of collapsing economic growth will only further undermine their legitimacy. So too will the plain impatience of the EU and markets for democratic niceties.
While George Papandreou’s call for a referendum was more a half-smart political tactic than a sudden discovery of the value of democracy, the EU’s angry dismissal of it, the installation of unelected technocrats in Greece and Italy, and the impatience of markets for Spain’s constitutional requirements to be overturned so the new government can immediately embark on reforms all reveal a logic that inevitably concludes with the suggestion that a “strong hand” is needed for the duration of the crisis.
Eurosceptics, of course, are like pigs in mud with this. The UK Telegraph’s (excellent) coverage of the crisis revels in each new revelation of euro-disdain for the forms of democractic process.
What began as a crisis in the banking system and then became a crisis of sovereign debt may yet become a full-blown crisis of legitimacy for democratic governments.