- - Sunday, July 31, 2011

BERLIN — Having bailed out three countries facing financial collapse, Europeans are concerned and bewildered over the U.S. debt-ceiling crisis with Tuesday’s deadline looming for Congress to avoid defaulting on obligations.

“The politicians in Washington are playing with fire without any need,” Peter Bofinger of the German Council of Economic Experts, which advises the German government on economic policy, told The Washington Times.

“Already now the world economy is in a very fragile situation, and it doesn’t need additional shocks.”

President Obama told German Chancellor Angela Merkel during her visit to Washington last month that the eurozone crisis could not “be allowed to put the global economic recovery at risk.” Now it is Europe’s turn to urge the United States to act fast to prevent its own financial difficulties from having a global impact.

“The parties in the U.S. should be conscious of their responsibility to global financial markets,” German Finance Minister Wolfgang Schauble told the German daily newspaper, the Passauer New Press.

“I remain confident that a sustainable solution will be reached, even if it may happen in the last minute,” he added.

Washington’s eleventh-hour wrangling is a source of frustration for many observers.

“People know that this is not as much a debt crisis as it is a political crisis,” John C. Kornblum, a former U.S. ambassador to Germany told German news network NTV.

“Its not even a political crisis. Its a crisis of politicians who don’t have any idea how to gauge public opinion.”

Analysts say the American debt crisis could not have come at a worse time.

“Many governments have reached the limits of their fiscal room for maneuver. The private sectors are still not strong enough to provide locomotive function. Unemployment is still high,” said Mr. Bofinger.

“In this fragile situation, you provide extra instability with this whole discussion over the debt limit. This is very dangerous.”

Christine Lagarde, managing director of the International Monetary Fund, has warned that, “A default or a significant downgrade of U.S. sovereign debt would be a very, very, very serious event, not for the United States alone but for the global economy at large.”

In Europe, the financial rescues of Ireland, Greece and Portugal have put pressure on the entire eurozone and forced economically stronger countries such as Germany and France to bail out their less stable neighbors with massive loans. Some say that American problems look almost trivial in comparison.

“The debt crisis in Europe is much more difficult to tackle because we have here countries that don’t have a central bank that can refinance them,” said Mr. Bofinger.

“The U.S. is in the privileged position of having a strong central bank that in case of doubt can buy all the government bonds. And to a large extent other countries are willing to hold U.S. bonds. What your politicians are now doing is to risk destroying this privilege without any need.”

The dollars unique position as the leading international reserve currency also makes this situation dangerous for the eurozone, the 17 European nations that use the common euro currency.

“We are very closely following events in the U.S. because we are heavily dependent on U.S. ratings, and the dollar is still the worlds leading currency,” said Ansgar Belke of the German Institute for Economic Research.

“We do not see any viable alternative for a reserve currency in the next 10 years. Many people in Europe feel we are held hostage by our dependency on the U.S. currency.”

Jan Burdinski, program director for Republicans Abroad in Germany, said his organization and others he has contacted in his role as a political consultant are watching the situation closely.

“Everyone is looking at Tuesday,” he said. “I have spoken to senior Chinese officials here in Berlin, and there is a big excitement and anxiety looking toward Washington on whats happening in the negotiations between the Democrats and Republicans.”

Mr. Burdinski stressed that Republicans Abroad wants to see a deficit reduction and are strongly opposed to any increase in taxes.

“Our members want Congress to stay put and to be very committed to not raising taxes and rather cutting expenses on the broader level,” he said.



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