European Debt Crisis

EU agreement isn’t necessarily the right fix

David Gura Dec 12, 2011

Kai Ryssdal: I’ll bet you $10,000 you can’t guess where we’re going to start today.

Nah, it’s a sucker’s bet, really. It’s Europe. You knew that.

But here’s the thing. The big political disagreements we’re having here over the economy and what to do about it? Whether to cut spending or spend more and hope there’s growth? They’re doing the same thing over there: Austerity on one hand, or stimulus on the other.

From Washington, Marketplace’s David Gura starts us off.

David Gura:A new treaty would require countries to balance budgets by slashing spending and raising taxes. They’d have to keep their deficits down -– or pay penalties. 

Dan Hamilton: These would be legally-binding strictures on members of that fiscal union.

Dan Hamilton heads the Center for Transatlantic Relations at Johns Hopkins. The theory is balanced budgets and smaller deficits boost confidence. That would encourage investors to, say, buy European bonds.

Hamilton: If you can get confidence in your economy — and a basic stability to the economy through the entire pan-European market, that confidence would allow economies to grow.

A pan-European market, Hamilton reminds us, that’s made up of half a billion people. But critics say these restrictions would hurt countries like Italy and Greece.  Ralph Bryant is with the Brookings Institution:

Ralph Bryant: Well, I don’t think you’ll grow your way out with very harsh austerity.

At least in the short term.  Bryant says, sure, balanced budgets are good in the long run, but maybe they shouldn’t be the top priority when economies are in trouble, like they are in Europe and the U.S.

Bryant: It’s a more severe trade-off in Europe, I think, than it is here, in the United States, but it’s qualitatively similar.

And that debate in Europe is one we probably want to pay attention to.

Stephen Strand teaches economics at Carleton College.  He says how things play out in Europe will ripple across the Atlantic. 

Stephen Strand: We’re so interconnected that if they have some sort of financial freeze that undoubtedly is going to carry over into the United States.

In Washington, I’m David Gura for Marketplace.

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