Euro-Zone Economics

Wednesday, May 25, 2011


Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Marketplace reporter Stephen Beard talks about economics news from Europe, including the euro zone's fiscal crisis and protests in Spain about unemployment, as President Obama speaks in Britain.

Europe's economy is in crisis.

Protests erupted in Madrid last weekend, and Spain looks poised to be the biggest European country to need a financial bailout, following Greece, Portugal and Ireland. President Obama spoke at the British Parliament today and then will go to France to attend an economic summit. Here in New York, prices on the New York Stock Exchange have dropped this week as worry over the European economy increased. 

Special and Essential

President Obama and Prime Minister Cameron spoke today about the shared values of their two countries. Beard said the emphasis on a “special relationship” between the two countries is very meaningful to the British.

I have to tell you how much this means to the Brits. They hang slavishly on every word of any visiting American president to see whether he utters this magic phrase “special relationship.”  Obama did not disappoint, in fact he cannot stop talking about the special relationship. Not only special, but he now has added another word, he is talking about an “essential" relationship.

In economic terms, this language signals a commitment from the president to free trade and free enterprise. Beard calls the present moment a time of escalating crisis for Europe. While the two biggest economies in the Euro-zone, Germany and France, remain strong, weaker southern economies in Portugal, Spain, Greece, Ireland and Italy are struggling. Ireland, Portugal and Greece have been bailed out by their European partners and the IMF, and the focus has now shifted to Spain and Italy. Beard said the strain of additional bailouts for these countries will “rock the euro to its foundations.”

It has been described as Lehman Brothers to the power of ten, if that happens.

Too Big to Fail

Bailing out a country the size of Spain so soon after performing the same rescue for Greece, Portugal and Ireland would wipe out the European funds designated for propping up lagging economies. In addition it would sorely test larger nations with stronger economies, who currently pay much larger shares of the bailouts. Beard said that at this point the euro is too big to fail, however, and its collapse would have massive repercussions that would be felt globally, and especially in the US.

With nations defaulting and failure not an option, the region's politicians are turning toward the age-old strategy of redefining failure.

It’s a sure sign that people are being softened up for something that’s potentially unpleasant when politicians start slipping into euphemisms. The word default has begun morphing into other words like “rearrange”… Politicians have been talking about “rearranging” their debt, or “re-profiling”, and “restructuring.”

Beard said eventually the crisis will probably be resolved by getting the Central Bank to accept the idea of a soft default.

On the one hand you’ve got hard default, which is a country saying ”Can’t pay. Won’t pay. Stop bothering me,” but then on the other end of the spectrum you’ve got something a bit softer. You’ve got renegotiating the terms, you’ve got extending the repayment dates…That’s probably where we’ll be heading with this.

North Africa and the IMF

Beard said one goal of President Obama’s visit to Europe was to encourage European countries to invest in North Africa, to support the democracy building efforts of the Arab spring. The United States and Britain share concern that a vacuum may be opening in some of these areas as the struggle to define new leadership continues. If western money doesn’t flow toward this vacuum, cash from other places like China and Saudi Arabia might. Beard thinks that the president will meet an unenthusiastic response from Europe, as countries strapped for money are unlikely to invest elsewhere. 

Leadership shifts at the head of the IMF may also pose a new paradigm for Europe, as for the first time the IMF considers a non-European leader. Beard said while Europeans had accepted that leadership of the institution should come from an emerging economy, in the current crisis Europeans want a European in control.

At the top of the IMF’s agenda is solving the Euros own debt crisis. The Europeans fear that if somebody from an emerging economy came in, they wouldn’t have the same political heft in Europe, they wouldn’t have the same understanding of the European problem, so the Europeans are going to pushing very hard for this.



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Comments [7]

amalgam from Manhattan by day, NJ by night

@ Dom - That's cute but inaccurate considering

kids can't have credit cards;

U.S. spending over the past three years happened not for fun but to handle one of the worst financial/economic disasters in the history of the world (some not wisely used/on poor terms);

the U.S. can and will cut spending and restructure economy/entitlements (for better or worse);

the U.S. has the ability through Treasury/Fed to enact monetary policy;

a secret service agent would pull out a credit card and pay.

May. 25 2011 02:20 PM

by the way that joke is from the golden girls 25 years ago!!

May. 25 2011 11:58 AM

i knew that might happen

May. 25 2011 11:58 AM
Mike from Tribeca

The Pope, the Queen and Nelson Mandela walk into an bar.

The bartender asks, "Anglican for free drinks again, heh?"

May. 25 2011 11:29 AM
Lila from NYC

The pope, the queen & Nelson Mandela walk into a bar.
And sarkozy walks under it.

May. 25 2011 11:21 AM
Dom Miliano from Lost in NJ

The Queen of England, Nelson Mandella, the Pope and Barak Obama walk into a bar. After a few drinks, the bartender asked, "who's paying?" The queen said, "I never carry money - too common" Mandella said, "I was oppressed for decades, someone else has to pay". The Pope said, "I can bless the bar, some think that's priceless". Smiling, Obama pulled out his wallet and paid the bill with his kids' credit cards

May. 25 2011 11:18 AM
Mike from Tribeca

The Queen, the Pope, Nelson Mandela walk into and bar.

The bartender asks, "Eighty-sixed from all the Dublin pubs again?"

May. 25 2011 11:12 AM

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