A recent Milwaukee Journal Sentinel editorial on the European financial crisis points out some important connections for Wisconsin residents and businesses to note, as the other side of the Atlantic is home to our export partners, a key driver of Wisconsin job creation. However, two important factors were left out of the analysis, and the editorial board missed an opportunity to provide key context for the current crisis that affects us all.
The last two years has seen a messy debate in Europe about how to balance the books with a monetary zone that includes some of the richest and some of the poorest European countries, with the reality that others won’t join or cannot. This is all set against a global recession marked by Mideast political unrest, permanently high oil prices and an American market of dampened consumer demand.
All of that wrangling was changed by two events the newspaper left out of the picture. Last week, Germany had a bond auction that failed to meet its 35 percent target. In other words, market players called Germany’s bluff and insisted, through their lack of purchasing German bonds, that the EU and America step up to the plate to fix this mess. That’s the second factor: President Obama deserves credit for pulling together key European nations at the White House on Nov. 28 and pledging Federal Reserve cooperation with EU central banks to effectively lower the cost of borrowing.
This makes all concerned nations’ public debt cheaper and more manageable in uncertain times. But it does not provide the certainty we all need, and it will not, as the MJS points out, get us to the overall goal, which is growth and expansion for both European and American workers and investors. This is a complex game plan, oversimplified by the editorial’s “sins and sinners” comparison. Europe’s model of wages, pensions and insurance is more generous than America’s, but is still predicated on a set of legitimate, if not expired, assumptions: namely, perpetual expanding wealth and stability in public revenues. Recession, wars and a rising Asia, led by China and India, is altering that template, and with America in essentially a ten-year economic fog, it’s even harder for Europe to keep up.
This is why which countries are in the eurozone is so important. Like in America, as debt mounts, its poorly integrated economy is illustrating painfully that there are more poor people and nations than there are wealthy. The US, the European Union and the eurozone are also politically linked, which means that when trouble spreads, there are unpredictable but widely rippling consequences. Hence, Europe has recently seen topsy-turvy elections and sometimes-contradictory policies.
Greece, Portugal, Ireland and other EU nations are stuck with the same problem America has: how do you get back to those good old days after WWII when the world enjoyed relatively peaceful times marked by a Cold War that generated massive economic expansion for all of the major Western economies? With that wealth creation came social contracts and economic bargains that created important safety nets and spread economic winnings across the population instead of just the moneyed or lucky, connected few.
It’s a tough question. What to do when you have a combination of skill and innovation, economic power, and wealth living alongside widespread job insecurity, deepening poverty and ever-growing disparity between the haves and have nots? No pension or benefit cut is going to alter those scales, but will only increase the agitation in the populace.
In the past, Europe, and in particular Germany, went to war and invaded neighbors. America joined those battles because of both deep ties to our heritage and the obvious economics of protecting our major trading partners. That was the big mistake of WWI: German reparation demands that gave life to Hitler and his Nazi regime. We learned from that mistake the hard way, and after WWII the Marshall Plan brought widespread political stability to much of Europe via the UN and NATO, as well as American-led economic rebuilding, crowned by the Berlin Wall coming down and a 21st century promise of a peaceful, prosperous unified Europe.
Now we live in a post-9/11 world and markets driven by Asia’s rise. Greece doesn’t have its problems because it’s generous or lazy. Their expenditures simply can no longer keep up when Germany is successfully competing with the Asian manufacturing boom, its economy growing while its neighbors’ contract, in part directly because of German ingenuity. This is true all over Europe and in America, as we all debate taxes on the rich, safety net benefits, expanding health insurance or how much public servants get paid while they work or when they are retired.
That debate is what last week’s central bank intervention hopefully moves forward, along with some financial cushion for millions of people whose lives are hanging on the fates of worthless real estate and a bleak job market. But the tough decisions, in my view, are not debating who’s a sinner and who is the angel, as the MJS opines. The sin would be not recognizing that the baseline assumptions of post-WWII politics and economics have changed forever and that those changes have serious implications for Americans.
Forging ahead will require more than smacking around smallish, welfare-state economies or auctioning off the pension of a public school teacher or truck driver. America and Europe, with aging populations, relatively open borders, and democratic, albeit damaged, public institutions are challenged with developing a 21st century model that works.
For solutions, we should look to the best examples from the 20th century. The New Deal (FDR actually went out of his way to advocate for safety nets that did not resemble European welfare state models or, in Roosevelt’s words, “create dependency on government handouts”), the Marshall Plan and an equitable and sensible world system of NATO-like peacekeeping are key examples. We need to effectively counteract the way global capitalism doesn’t always play fair and how political instability is exacerbated by radical uprisings equipped with cell phones and cheap weapons.
America and Europe must continue to be major economic players in any kind of global trading system. For now, our combined military powers vastly exceed the capabilities of a clumsy China or a rogue Iran. Both of those entities can and will likely pose a massive international threat in upcoming years, maybe much sooner. How we prepare and how we respond will make the difference in whether most of the world lives in (or reasonably works toward) long-term peace and prosperity or descends into a long-term cycle of wars and economic chaos.
Josh Zepnick represents the 9th District in the Wisconsin State Assembly.