Commentary

Lessons from Europe’s debt crisis

Marketplace Staff Feb 17, 2010
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Commentary

Lessons from Europe’s debt crisis

Marketplace Staff Feb 17, 2010
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TEXT OF COMMENTARY

Kai Ryssdal: There was the faintest glimmer of hope in European finance circles today. Investors snapped up a new Spanish government bond that went on sale this morning. Part of that is because Madrid offered a pretty high interest rate. They had to given the debt squeeze that’s going on over there right now. But part of it could be because some of the worries about actual government defaults have dissipated.

Commentator David Frum figures President Obama ought to be paying pretty close attention.


DAVID FRUM: Last week the government of Spain announced big cuts in government spending: $70 billion over the next three years. Allowing for the difference in size between the American and Spanish economies, that’s almost an Obama stimulus in reverse. The Spanish package contains a lot of gimmicks, but pensions will be cut, job-creation schemes halted, and the retirement age raised to 67.

Ireland has swallowed even harsher medicine. Portugal, Greece and probably Italy will soon follow.

These countries are cutting deficits in the throes of the worst recession since World War II. They are making these choices because they perceive the alternative as worse: a risk that budget deficits will create market pressures that will force them off the euro.

These governments — and others in Europe — are accepting higher unemployment in order to defend their currency. That’s the policy choice that got Herbert Hoover such a bad name. Back then, the currency was the gold-standard dollar, but the principle is the same.

And yet, while Spain’s socialist government has seen its poll numbers drop, neither Spain, nor Greece, nor Portugal, nor Ireland is experiencing serious public pressure to quit the euro.

To the leaders of these countries, the euro means Europe, and Europe means prosperity, stability, democracy, and peace. The leaders of virtually all major parties made this argument to voters, and the voters have accepted it.

Populism is seldom as popular as pundits imagine. Protectionism may do well, but it’s the free traders who win the elections.

If leaders want to summon voters to look past the difficulties of the moment, they have to make that case forcefully and unapologetically. When President Obama said in his State of the Union address, “We all hated the bank bailout,” he made his own job vastly more difficult. If you are going to defend something tough, then defend it. Events will prove you right or wrong, and in the latter case, there will be an eternity in which to express regret.

RYSSDAL: David Frum is a resident fellow at the American Enterprise Institute.

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