Global economic jitters

We refer to global economic jitters as we watch the difficulties that both the European Union authorities and the United States government have been having in recent weeks, with various stops and starts in dealing with the management of various economic issues, as reflected mainly in financial gyrations. But we use the term global, because it is clear that governments of countries which have not been affected by their financial turbulence and slow economic growth have become deeply perturbed by their continuing instability. These governments recognize what is happening as reflecting an unexpected time lag in economic growth recovery of the North Atlantic world since the recession of 2008-2009. But they also see it as a crisis of determination of appropriate economic policy in a manner that can satisfy various power players in the political systems of the US and Europe.

The sentiment of these, so to speak, onlooking governments is well indicated in a recent statement by the Chinese government authorities that could not possibly have been imagined even five years ago. In the face of what the Americans refer to as the gridlock in economic policymaking on the American deficit and national debt, the Chinese have described the situation as “irresponsible” and warned that the political play in Washington was in danger of “strangling the still fragile economic recovery of not only the United States but also the world as a whole.” Of course, the Chinese, with their highly centralized decision-making system will probably not fully comprehend the play of the deliberately constructed constitutional division of powers and labour between the US presidency and the houses of Congress. Instead what they see is a dangerous contest for popular acceptance that has the potential for creating increasing uncertainty for the American dollar, and therefore for the strength of the $1.6 trillion worth of Treasury bills which they have invested there.

There is, somewhat, though not much, less concern about the rush of consultations and decision-making that has taken place within the Eurozone of the European Community over the last two months or so, over first the depths of the indebtedness of the Greek economy, and then just as things seemed to be normalizing, the new threat to the Eurozone and the euro caused by similar situations in Italy and Spain. There, particularly in respect of the latter’s indebtedness, it was felt that a conclusive agreement on policy was arrived at some weeks ago. Germany, the major player in the Eurozone, whose recovery from the threat of the 2008-09 recession has been successful, has found itself burdened with the responsibility for finding, and in part funding, a solution to the crisis of the weaker members. For the Germans the crisis, particularly in the case of Italy with its persistent anaemic growth, is seen as being caused by deliberate neglect of the Berlusconi coalition government, in coming to terms with its burgeoning deficit and debt.

In many parts of the world, the institutional gridlock in the US among the separate powers of their constitutional system is giving cause for concern. It is now seen as uncaring of the interests of other states dependent on the United States dollar, or in terms of the influence which it has not only on global investment, but for the institutional role which it plays in the international economic institutions. Many fear an extension of the paralysis beyond American shores. In Europe, on the other hand, although it is recognized that the offending countries – Ireland, Portugal, Greece Spain and Italy – have a long way to go in permitting a stabilization of their debt, and a resumption of economic growth, a more positive sentiment about an upgrading of Eurozone policy-making and its requirements has developed.  This has been influencing the German government in particular, whose constitutional court has in recent years tended to try to put a brake on any further moves towards the extension of EU decision-making power over the constitutional rights of the individual states of the German Federation.  A consequence of the Eurozone crisis has been the emergence of much discussion on the issue of the need for enhanced economic governance of the Eurozone system, with more power of intervention for the European Central Bank. The language used is that of creating a more definitive fiscal union to enhance the economic union, and therefore a greater degree of political union, in the sense of collective decision-making of the Eurozone system governments, in matters relating particularly to the creation of deficits and debt by the separate states, and therefore to the prospects for economic growth. In that respect, we might say in passing, the crisis in Europe is indicating a consolidation of the economic union through adding instruments of fiscal control, while, on the other hand, the crisis among Caricom economies suggests a reversal of commitment to economic union, as symbolized by the word “pause.”

In the United States, over the weekend and into this week, there has been much surprise and indignation at the downgrading by Standards and Poor’s, with suggestions of technical incompetence by that agency. But the renewed instability of the dollar suggests that what has become a concern over the ability of the decision-making arrangements of the United States federal system to sustain enough coherence, and therefore consistency, is giving rise to a more widespread international concern. This concern is being aggravated in certain decision-making quarters which recognize that the globalised and integrated nature of the world economy has resulted in the creation of influences over the American economy which have hitherto not existed. It is true that China, the repository of extensive American investment, and with its own substantial American currency holdings, will have recognized that it cannot take actions that might further aggravate international concern with the US economy. But it is also the case  that an American President and Secretary of the Treasury at least, unlike some of the players in the Congress and some Republican presidential wannabees, also recognize that the extent of US autonomy over national economic policy and  influence over the fates of external economies, is no longer what it used to be.

In the US, there is some doubt as to whether President Obama has been decisive and forceful enough in attempting to influence the Congress, and in choosing policies which, while recognizing the necessity for cuts to reduce the deficit, put sufficient emphasis on the need for policies permitting  a resumption of American economic growth. Economists like the Nobel Prize winner Paul Krugman and President Clinton’s Secretary of the Treasury and Obama’s Director of the National Council, Lawrence Summers, have been quite critical of him in this regard. Clearly the debate over an appropriate policy direction for the American economy is far from over, while other major economic powers become increasingly impatient.

In the Eurozone, it is probably the case that leading powers like Germany would wish to see a new government in Italy, that country being one of the central players in the system. Whether the highly regionalized political structure of the country will lead to anything other than another coalition is debatable. But other countries of Europe, including some of the seventeen members of the Eurozone, and a Britain which has long stood outside, but whose Conservative government’s economic measures are yet to give any indication leading to resumed economic growth, will recognize that they have a deep interest in the viability of a system which has among its players both Germany and France.

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