Resembling a huge 74-wheeler packed with unassembled goodies, the U.S. economy is stranded on the grade crossing with the Euro Express gathering speed as it tears down the tracks for a seemingly inevitable collision. A police report, written by patronizing Harvard economists sometime in the dim future, will ask why wasn’t something done to avoid the crash. Why was it the trucker didn’t get off his CB, stop talking about the “bears” (police), and move the goods on their normal route toward assembly and profit?
That’s as good a simile as I have for this moment in economic history, when world leaders have gathered for two U.S. summits to wring their hands and attempt to manage a growing crisis. The Europeans, arguing about who is at the throttle, seem clueless about stopping the train. President Obama, the truck diver, is so preoccupied with being caught by the “bird dog” (radar) to permit American business to free the economy by simply taking his foot off the brake.
Mr. Obama, trying to talk his European colleagues into loosening the purse strings (in this case, alas, by rolling the printing presses), will get some help from new French President Francois Hollande. It’s the first affirmative response Treasury Secretary Timothy F. Geithner’s minions have gotten after accumulating thousands of frequent-flier miles jetting back and forth across the Atlantic and rolling up big tabs in those fabulous Brussels restaurants, all the while evangelizing for “stimulus.” Mr. Hollande represents growing European populism, rebelling against austerity as the primary remedy for earlier nanny-government profligacy. German Chancellor Angela Merkel, backed up against a wall by German voters who do not want to ante up for more bailouts, will have to fudge her role as chief governess with her governing coalition falling apart.
Ironically, the dirty little secret no one wants to talk about is that whatever liquidity the Europeans have pumped into their system — e.g., the European Central Bank’s $1.15 billion prop for the Continent’s banks — has flown to the dollar on the eve of a threatened Greek breakout and the rebirth of a neo-drachma. That’s facilitated the Obama-Bernanke (largely unsuccessful) attempt to reflate the American economy with “stimulus” and “quantitative easing,” helping to fund the runaway U.S. deficit at record-breaking low interest rates with (so far) low inflation. Fears of collapse of the euro boosted the dollar even at a time of growing U.S. domestic economic crisis, stubborn high unemployment and slackening growth. The dollar still reigns supreme as the international reserve currency, despite Beijing’s public carping. Realistically, if hypocritically, China continues to gobble up low-paying but relatively “safe” U.S. Treasuries and hoards its obscenely huge currency reserves in dollars.
But with every indication that the whole of Euroland and Britain are going into extended recession, the distress in Europe, collectively the biggest economy in the world, will be felt in the U.S. Mr. Obama’s vaunted promise to double U.S. exports in five years is a will o’ the wisp if the EU, America’s No. 2 customer after Canada, sinks into stagnation or worse. Even the portentous goods trade figures pale in comparison with the $166 billion in U.S. services sold to the EU in 2010, along with the $168.1 billion in annual direct investment. Even a modest medium-term European economic disruption would spell disaster for U.S. trade and the American economy.
There isn’t all that much Mr. Obama or presidential hopeful Mitt Romney can do directly about Europe’s problems. Mr. Obama never tires of saying so as part of his “leading from behind” motif for American foreign policy. But as has been the case since World War II, the now somnambulant U.S. consumer economy remains the spark plug for world growth and European prosperity. Note that Germany’s unique position as strongman in this dismal European economic arena is based on its aggressive export-led strategy. And it has booked the U.S. as No. 1 market for a whopping 6.5 percent of its $100 billion-plus in exports, eclipsed probably only briefly last year as Berlin attempted to shift emphasis to China, which now faces economic challenges of its own.
It doesn’t take much to see how Europe’s disaster is America’s, and vice versa. The only question is just how hard will that locomotive hit the truck and who will pick up the pieces.
• Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at email@example.com and blogs at www.yeoldecrabb.wordpress.com.