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We Are All Europeans Now

12:00 AM, Nov 12, 2011 • By IRWIN M. STELZER
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Finally, there is that great intangible, confidence, or what John Maynard Keynes called the “animal spirits” of entrepreneurs. It is difficult to keep one’s spirits animal-like when news of defaults and haircuts accompany morning coffee and workouts in corporate gyms, when pictures of feckless eurozone politicians flash across screens as they decide that the solution to their problems is a hand-out from China, which has no present intention of filling their begging bowls, and when American politicians do their best to emulate their European counterparts. Better to sit on $2 trillion of cash than to risk it in an unpredictable world.

All of these are low probability events. But the low probability of a catastrophe is enough to make consumers and investors take notice. Which is especially unfortunate just now. The economy is struggling, but all signs are that a double-dip recession has been avoided, replaced by what Federal Reserve Board chairman Ben Bernanke calls “frustratingly” slow growth. There are some signs, too, that the both Democrats and Republicans have looked into the Grecian abyss and stepped back. Democrats say they are willing to consider some reductions in entitlement programs, and Republicans say their opposition to increases in tax rates does not mean they are opposed to “revenue enhancements” that might be obtained by reforming the tax structure. The odds against a deficit-reducing deal of any magnitude remain high, but they are a trifle lower than they were last week. For which we can thank the trilling of the canary in the European coal mine.

Meanwhile, as it becomes clearer that the collapse of MF Global is a tragedy only for Jon Corzine and his investors, and that U.S. money funds and banks have reduced their exposure to the eurozone to minor levels, fear might ease. Not to be replaced by a revival of animal spirits, but at least by less fear. 

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