With low government spending, low business confidence, low consumer confidence, there is little hope for any serious economic recovery, hence the predictions of a 2.5% decline in Eurozone GDP. The reality is that Germany is proposing solutions for unbalanced budgets, when the real problems are stagnating GDPs and high unemployment. This mismatch between the problems and the solutions has led to the problems being exacerbated, a situation compounded by the erroneous logic that budget-cuts, as opposed to increased demand, are the source of confidence in the marketplace. That logic is not founded in any credible, tested economic research. Business investment is driven by demand, not by ideologically-driven fiscal policy.
For the U.S., there are two implications. One is the risk that such policies will be implemented here. Europe should be a cautionary tale against budget obsessions as a solution to problems that are only tangentially related. There are significant differences between the structure of the Eurozone and the structure of the United States economy, but the underlying...
The other implication for the U.S. is that if Europe slips back into recession, two things will happen, neither good for America. The first is that demand from Europe will decline, something that hurts many American businesses, especially automakers. The second is that the Euro will weaken further, making European goods more competitive on the world market vis-a-vis American goods. A strong Europe benefits America in the long run, so signs of a weakening Europe and policy bungling are discouraging for American businesses.
Key Concepts:
GDP
Housing Bubble
Recession
Unemployment
Fiscal policy
Monetary policy
Balanced Budgets
Austerity
Business and Consumer Confidence
Accounting Identity
Works Cited:
Jolly, D. & Eddy, M. (2012). Data show weakening in Eurozone economy. New York Times. October 30, 2012, online edition.
