We’re all in this together. The globalized economy, that is. We Americans worry that the eurozone crisis has returned, and will abort our fragile recovery, while Europeans worry that America’s none-too-robust economy and its weak dollar will make it difficult for EU export industries. America’s policymakers think their European counterparts are mad to believe austerity will restore economic growth, and Europe’s policymakers sniff that no country ever became prosperous by printing money, borrow-and-spend, and depreciating its currency. Europeans find the falling dollar especially galling: Other things being equal, the cheaper dollar makes it about 10 percent cheaper than it was a year ago for Europeans to buy and visit America, and more expensive for Americans to tour Italy, ease into a Mercedes, or uncork a bottle of French wine to accompany France’s now-more-costly (to us) brie.
There is more to this than a different reading of the prescriptions of the great economists. Economies reflect the history and cultures of each country, something the core countries of the eurozone are finding to their amazement and pain: surprise, Greeks are not Germans. And Europeans are not Americans. Americans by and large accept the creative destruction wreaked by entrepreneurs, while Europeans put greater emphasis on preserving the status quo. And “union,” as in European Union, is different from “united,” as in United States. The differences between conservative Texas and liberal New York are nothing compared with the differences between, say, Germany and Spain, or even between Italy and Spain.
The differences between the U.S. and the EU are reflected in attitudes towards fiscal policy and income transfers. Here is how they are playing out.
The U.S. economy is recovering, slowly and haltingly. The Federal Reserve’s latest survey of current business conditions reports, “Manufacturing continued to expand…. Demand for professional and business services showed modest to strong growth…. Reports on retail spending were positive…. New-vehicle sales were reported as strong or strengthening across much of the United States. Tourism increased …. Residential real estate showed some improvement…. Agricultural conditions were generally favorable. Mining activity expanded.”
Good but not wonderful news. If the economy grows at the 2.5 percent rate most analysts expect, there will still be some 22 million workers looking for full-time work or too discouraged to do so when the year ends.
Right now, Europe would settle for 2.5 percent growth rather than the recession into which it is falling. Germany is slowing. The Dutch economy is not what it once was. Unemployment in France is mounting. The U.S. and European economies are moving in opposite directions.
This divergence has its roots in history and institutional arrangements. Germany, the largest of the eurozone economies, has an understandable fear of inflation, rooted in the rise of Hitler. America, in the view of Federal Reserve Board chairman Ben Bernanke, has an understandable fear of deflation and mass unemployment, rooted in Bernanke’s studies of the Great Depression. As a result, the European Central Bank has a single mandate: to maintain price stability. Even Mario Draghi, its inventive managing director, can develop only limited tools with which to stimulate the economy. The Fed, on the other hand, has a dual mandate: to maintain price stability and full employment. Bernanke is as imaginative as Draghi, but less restricted in the tools he can use to get the economy moving, one of which is a printing press that assures creditors they will be repaid, even if only in depreciated dollars, the sort that stimulate exports.
The eurozone’s founders learned that a single monetary policy grafted onto wildly different fiscal policies could not withstand the pressures of a major problem in the world’s financial markets. Troubled eurozone countries do not have a currency to devalue, as does America.