- The Washington Times - Wednesday, November 2, 2011


World leaders are gathered in Cannes, France, for the Group of 20 summit, with the European debt crisis at the top of their agenda. Greek Prime Minister George Papandreou’s bombshell announcement that there will be a referendum to determine whether Greece will accept the bailout package devised last week has thrown a wrench into the plan on which the parties involved had banked to prevent the contagion from spreading to the fragile economies of Italy and Spain.

The first victim of this uncertainty is MF Global, headed by former New Jersey Gov. Jon Corzine, a Democrat. The firm filed Chapter 11 bankruptcy largely because of its exposure to European sovereign debt. Once again, President Obama will lead from behind. The U.S. economy no longer serves as a model for others, except insofar as our debt and soaring entitlement problems instruct others what not to do. Europe would rather turn to China and its massive currency reserves as a way to leverage the European Financial Stability Facility fund up from its current $616 billion. But Beijing doesn’t seem inclined to buy risky European debt instruments, and quite wisely so. The Middle Kingdom is buying only the safest European bonds.

Less wisely, the People’s Republic seems disinclined to reconsider its mercantilist trade and foreign-exchange policies, which require the maintenance of vast foreign-currency reserves. This isn’t an efficient use of resources, and it ultimately hurts the Chinese people more than anyone else by artificially inflating the price of imports. China’s recalcitrance on this front also provides cover for protectionist lawmakers in the United States and hampers further efforts to free international trade - one of the most certain means of fostering the economic growth needed for creating jobs across the world.

Achieving such growth ought to be the focus of G-20 nations. The United States expanded its output 2.5 percent in the third quarter of this year, but that followed a lackluster 0.9 percent growth in the first half. Growth in Europe is stalling, with 0.3 percent predicted for next year after a less than stellar performance of 1.6 percent this year.

Last week, the International Monetary Fund suggested looser monetary policy as a way to jump-start growth in Europe, but tight money isn’t what ails Europe - or the United States. The Federal Reserve already has tried pumping money into the U.S. economy and found that it failed to produce any economic growth.

The problems are deeper and more systemic. The government sector is too large, regulations are too burdensome, and entitlements severely distort incentives in the labor market. There are no quick fiscal or monetary policy fixes to any of these problems. If Europe wants to return to a growth path and if the United States wants jobs, these are the problems that must be solved. If Beijing truly wants to be a global economic power, it needs to start acting like one and play by the same rules as everyone else.

Nita Ghei is a contributing Opinion writer for The Washington Times.

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