Let’s be crystal clear: we don’t believe any of these people are bad or are intentionally trying to destroy the world.
But if there’s one thing that has become obvious, it’s that policy paralysis is a major contributor to the ongoing global economic malaise.
Whether it’s in the halls of the U.S. Congress, at the world’s biggest banks, or at the various EU Summits, the actual difficult decisions required to heal the global economy are hampered by numerous divisions.
Some of the divisions are ideological. Some are national.
Again, we’re not accusing anyone of acting badly, but in pursuing certain interests, the net effect is a world that can’t get on the right path.
Angela Merkel, German Chancellor
Position: Chancellor of Germany, 2005-present
Impact: As the German chancellor, Angela Merkel faces routine criticism for her handling of the euro crisis, and her responses to market developments are often viewed as reactive instead of proactive, contributing to a deepening of the crisis.
As the main economic force and largest creditor nation in the euro area, Germany‘s agreement is key when it comes to building consensus among euro area nations on how to move forward. However, as a politician, Angela Merkel’s number one concern is necessarily catering to her political constituency – the German electorate. And the Germans are generally not too thrilled about sending more and more money with less and less guarantees that it will be returned from insolvent countries in the periphery like Greece, Portugal, and Spain.
Just last week, Merkel was quoted as saying that Europe would have no shared total liability for debt “as long as I live,” which was taken as negating a proposal for eurobonds – a construct many believe is the only way to solve the euro crisis.
Francois Hollande, French President
Position: President of France, 2012-present
Impact: Francois Hollande is an outspoken voice for greater fiscal integration and debt-sharing measures to be implemented in the eurozone. This has led him into a face-off with German Chancellor Angela Merkel, who opposes such actions. Reuters recently described Hollande as “determined to show he is standing up to Berlin after his predecessor Nicolas Sarkozy was seen as having let Merkel have her way at euro zone crisis talks.”
At the same time, Hollande and his Socialist government are taking measures in France, like lowering the retirement age, that others view as unconstructive in the French government’s relationship with Berlin.
The German magazine Der Spiegel summed up this sentiment as follows:
France’s newly elected Socialist government has just decided to lower the retirement age to 60. From now on, no Frenchman will be forced to work any longer just because it might help kick-start the country’s flagging economy. And there’s no way the French are going to work as long as their poor fellow Europeans in Germany, whose government is obliging them to labor and toil until age 67.
Hans-Werner Sinn, German economist
Position: University of Munich Economics Professor and Ifo Institute for Economic Research President, 1999-present
Impact: As head of an influential German think tank, Hans-Werner Sinn is one of the most outspoken academic opponents in Germany to continued bailouts to the eurozone periphery, writing recently that “neither the euro nor the European idea will be saved by the extension of liabilities to banks.”
The Reuters profile of Bild deputy editor Nikolaus Blome says that “Bild has given a lot of space to Hans Werner Sinn…a leading economist who regularly calls for Greece to leave the euro zone. Once isolated and viewed as somewhat absurd – Finance Minister Wolfgang Schaeuble criticized his opinions as nonsense – Sinn’s views are more mainstream now, thanks in part to Bild.”
Sinn also caused a stir in the financial press last summer for his controversial views on TARGET2, a eurozone-wide interbank payment system, with one German correspondent referring to them as an “egregious and disingenuous argument that is factually wrong.”
Ben Bernanke, Fed Chairman
Position: Federal Reserve Chairman, 2006-present
Impact: Fed chairman Ben Bernanke has guided the markets through arguably the most important financial crisis of all time – the collapse of the U.S. housing market in 2008 and its knock-on effects on markets around the entire world.
Bernanke has also received criticism from economists like Paul Krugman for not engaging in enough monetary easing to boost the economy further. Krugman wrote recently in New York Times Magazine, “The Fed is supposed to pump up the economy when it’s running too cold, with unemployment high and inflation low. That’s where we are right now, in the Fed’s own estimation. Yet the most recent minutes, from March, show Fed officials unwilling to take any further action to boost the economy.” However, Bernanke denies this premise, passing the buck back to Congress and further hampering the policy response.
Nikolaus Blome, Deputy Editor of the newspaper Bild
Position: Chief Political Correspondent and Deputy Editor of Bild
Impact: The German newspaper Bild is the most widely circulated paper in Europe and the seventh-most widely circulated paper in the entire world. Nikolaus Blome, as chief political correspondent and deputy editor of the paper, reaches millions of Germans every day with his writing, as well as via a weekly television show in which he discusses current political issues.
Reuters recently profiled Blome, calling him one of the “power brokers with Europe’s fate in their hands.” Bild and Blome’s large German audience are key in tying German chancellor Angela Merkel’s hands in international debate, because they don’t believe the German people should send their hard-earned tax dollars to the Greeks in order to bail them out. This characterization is reinforced by Bild covers that run headlines like “Every Greek pays €1355 a year in bribes.”
The conservative Blome told Reuters that at Bild, there is a “clear editorial consensus that Greece is not going to be rescued the way this is going and that it should probably leave the euro zone at least for the time being.” His stance and that of the paper are contributing to an ongoing conservative influence in Germany that helps tie the hands of German politicians.
President Obama, US President
Position: The 44th President of the United States, 2009-Present
Impact: President Obama inherited a historically bad economy. He made several blunders along the way that made it worse than it had to be. First; the initial stimulus package was not large enough. Whether he underestimated the depth of the crisis, or overestimated hisability to pass more stimulus later, he missed an opportunity to shorten the downturn. Now declining public sector spending is holding back an economy that can ill afford additional headwinds.
Some of the President’s policies contribute to the gridlock we’re seeing. Expiration of the Bush Tax cuts, even for those with incomes of more than $250,000 is pretty much a non starter for the President’s political opponents. Insisting inflexibly on that position will only help ensure nothing will get done.
Additionally, he spent far too long listening to those who insist on austerity during a recession. The President was profoundly invested in the image he created for his campaign of a post-partisan President. In pursuit of that dream, he attempted to compromise with his opponents. Rather than leading to a debt agreement or a new age of bipartisanship, it led to a damaging debt ceiling fight and partisan gridlock. President Obama pursued debt reduction and compromise even when it was clear that it was impossible and the wrong policy decision.
Timo Soini, True Finns Chairman
Position: Chairman of the True Finns Party
Impact: As the leader of the largest opposition party in Finland’s parliament and one of the biggest eurosceptics in Europe, Timo Soini is in a position of incredible importance with regard to continued euro bailouts. Finland, just like every other euro area country, is required to sign off on additional assistance to financially troubled peripheral countries like Greece and Spain.
Soini penned a widely read article last year entitled “Why I Don’t Support Europe’s Bailouts,” Soini explained:
It is not the little guy who benefits. He is being milked and lied to in order to keep the insolvent system running. He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going. Meanwhile, a symbiosis has developed between politicians and banks: Our political leaders borrow ever more money to pay off the banks, which return the favor by lending ever more money back to our governments.
Earlier this week, Business Insider reported that “Finland’s government has vowed to block the ESM from actually buying bonds in the secondary market,” a key development from last week’s euro summit that was viewed as positive by markets. If this is the case, there could be further deterioration of the political and economic situation in Europe soon.
Mario Draghi, ECB President
AP/Riccardo De Luca
Position: President of the European Central Bank, 2011-present
Impact: Many look toward Mario Draghi, as the head of the ECB, for a quick fix to the euro crisis. As Spanish and Italian bond yields have risen past unsustainable levels as of late, there have been calls for the ECB to step in and alleviate market pressures by taking action – perhaps buying bonds on the open market. Not long after the ECB cut interest rates by 25 basis points on Thursday, critics were already saying that such action is not sufficient. Draghi himself said that the rate cuts would have a “muted” impact on the economy because “when demand is weak the transmission of price signals to the aggregated economy is muted.”
Respected hedge fund manager and commentator Bill Fleckenstein recently opined that the big problem with crisis management in the eurozone right now is that Draghi and the ECB are “unwilling to use the printing press with reckless abandon.” Time will tell if the central bank chief’s hand is eventually forced.
Maria Fekter, Austrian Finance Minister
Position: Finance Minister of Austria, 2011-present
Impact: Maria Fekter came under fire in June for suggesting that Italy may be next to need a bailout.
Despite her role as a European finance minister she has a tendency to make wild statements that are designed to play to domestic Austrians, even if they undermine European stability.
Regardless of how “real” one thinks her talk may be, the point is that many believe she should probably be letting someone else say it. When she made the comments about Italy, she was called out by Italian Prime Minister Mario Monti, who described her remarks as “completely inappropriate.”
Grover Norquist, tax lobbyist
Gage Skidmore via WIkimedia Commons
Position: Founder and President of Americans For Tax Reform, 1985-present.
Impact: Norquist has done more than just about anyone to entrench partisan gridlock.
He’s done it by getting 95 percent of Republican congressmen to sign a “Taxpayer Protection Pledge.” These congressmen have pledged to oppose any effort to increase marginal income tax rates for individuals and businesses, and oppose reduction or elimination of deductions and credits unless matched by a reduction in tax rates.
This tiny piece of paper has made a bipartisan agreement on debt reduction all but impossible. Republicans are insisting that the deficit be reduced through spending cuts alone. Democrats respond that tax cuts contributed to the deficit, and demand that austerity be balanced by tax increases. The deadlock extends to other legislation as well. The economy needs help, but with every proposed bill the same problem arises. We need to pay for it somehow, but raising taxes or closing loopholes is off the table due to Norquist’s pledge. The ability of our politicians to compromise and work together has been broken.
Eric Cantor, House Majority Leader
Position: U.S. Representative for Virginia’s 7th Congressional District, 2001-present, House Majority Leader , 2011-present.
Impact: Cantor is the number two Republican in the House, behind only John Boehner. He is considered a quasi leader of a particular ideological faction of the Republican party that insists on immediate austerity and no tax increases.
Cantor’s continued insistence on austerity helped derail a “grand bargain” on debt reduction between President Obama and John Boehner, could contribute to an inability to avert the fiscal cliff, and might lead to another round of damaging debt limit brinkmanship .
David Cameron, UK Prime Minister
Getty / Dan Kitwood
Position: Prime Minister of the United Kingdom, 2010-present
Impact: The United Kingdom is in a tough economic spot. Its proximity to and trade ties with Europe make it vulnerable to the continent’s woes. However, David Cameron’s insistence on austerity has stifled the government’s response, helping drive the country into a double dip recession.
Cameron bought into the repeatedly disproved idea of “expansionary austerity,” that cutting debt in the short term would be rewarded by the increased confidence of investors. It is a theory that consistently fails the test of reality. Cameron’s continued insistence on the policy hurts the economy now, and will continue to do so in the long run due to hysteresis. He is politically unable to change his position, due to pressure from Labour and the Liberal Democrats, creating a gridlock in the U.K. as well.
Ron Paul, Texas Congressman
Position: U.S. Representative for Texas’ 14th Congressional District, Candidate for the Presidency of the United States
Impact: Ron Paul’s contribution to the gridlock has been to push the debate on monetary policy so far to the right that even mainstream Republicans are becoming anti-Fed.
His continued insistence on slashing Government spending has informed the Tea Party movement, and any Republican member of Congress that strays too far from their orthodoxy is likely to be challenged in a primary. His rhetoric on returning to the gold standard haspoliticized the Federal Reserve, helping to constrain Ben Bernanke’s actions. He is retiring from Congress in January, but he will continue to use his strong grassroots network to push for smaller government.
- Business Insider: Ron Paul is Destroying the Global Economy By Constraining Bernanke (silverdoctors.com)
- Germany EconMin: Euro Crisis Increasingly Weighing On Economy (forexlive.com)
- German president tells Angela Merkel to come clean on EU debt deal (telegraph.co.uk)
- Europe’s train-wreck and the inevitable collapse of the global economy (theextinctionprotocol.wordpress.com)
- Easy to blame the Germans. Smarter to learn from them | Andrew Rawnsley (guardian.co.uk)
- Debt crisis: live (telegraph.co.uk)