{"id":1642,"date":"2011-09-30T18:22:43","date_gmt":"2011-09-30T16:22:43","guid":{"rendered":"http:\/\/www.lacanquotidien.fr\/blogx16y\/2011\/09\/new-york-times-news-analysis-in-european-crisis-experts-see-little-hope-for-a-quick-fix\/"},"modified":"2011-09-30T19:47:43","modified_gmt":"2011-09-30T17:47:43","slug":"new-york-times-news-analysis-in-european-crisis-experts-see-little-hope-for-a-quick-fix","status":"publish","type":"post","link":"https:\/\/lacanquotidien.fr\/blog\/2011\/09\/new-york-times-news-analysis-in-european-crisis-experts-see-little-hope-for-a-quick-fix\/","title":{"rendered":"NEW YORK TIMES – NEWS ANALYSIS In European Crisis, Experts See Little Hope for a Quick Fix"},"content":{"rendered":"

By GRAHAM BOWLEY and LIZ ALDERMAN<\/span><\/strong>
\n Last Updated: 6:22 HAEC http:\/\/www.nytimes.com\/<\/span><\/strong><\/p>\n

\nIt has happened time and again in recent months as Europe\u2019s debt crisis has played out. Stocks stage a strong comeback on expectations that a solution has been found. Then they quickly resume their decline as hopes dissipate, leaving investors puzzled and frazzled.<\/p>\n

What is going on?<\/p>\n

The problem, say close watchers of both the subprime financial crisis in 2008 and the European government debt crisis today, is that many investors think there is a quick and easy fix, if only government officials can agree and act decisively.<\/p>\n

In reality, one might not exist. A best case in Europe is a bailout of troubled governments and their banks that keeps the financial system from experiencing a major shock and sending economies worldwide into recession.<\/p>\n

The New York Times
\nThe latest rescue package for Europe gained approval from Germany on Thursday, after Chancellor Angela Merkel won a vote in Parliament, throwing the financial weight of the Continent\u2019s biggest economy behind a new deal.<\/p>\n

But a bailout doesn\u2019t wipe out the huge debts that have taken years to accumulate \u2014 just as bailing out American banks in 2008 didn\u2019t wipe out the huge amount of subprime debt that homeowners had borrowed but couldn\u2019t repay.<\/p>\n

The problem \u2014 too much debt and not enough growth to ease the burden \u2014 could take many years to resolve.<\/p>\n

\u201cEverybody has been living beyond their means for nearly the last decade, so it is an adjustment that will be painful and long, and it will test the resilience of societies socially and politically,\u201d said Nicolas V\u00e9ron, a fellow at Bruegel, a Brussels research group.<\/p>\n

This is not to say that the discussions in Europe are moot. If governments can\u2019t agree on how to rescue Greece from its debilitating government debt, some fear the worst could happen \u2014 a collapse of the financial system akin to 2008 that would ricochet around the world, dooming Europe but also the United States and emerging countries to a prolonged downturn, or worse.<\/p>\n

Just like the United States, Europe built up trillions in debts in past decades. What is different is that more of the United States borrowing was done by consumers and businesses, while in Europe it was mainly governments that piled on the debt, facilitated by banks that lent them money by buying up sovereign bonds.<\/p>\n

Now, just as the United States economy is held back by households whose mortgages are still underwater and who won\u2019t begin to spend again until they have run down their debts, Europe can\u2019t begin to grow again until its countries learn to live within their means.<\/p>\n

In short, it means years of painful adjustment.<\/p>\n

\u201cWe have to adjust to lower growth,\u201d said Thomas Mirow, president of the European Bank for Reconstruction and Development, referring to both Europe and America. \u201cIt is of course going to be very painful. But leaders have to speak frankly to their populations.\u201d<\/p>\n

The uncertainty about Europe\u2019s future has been driving the gyrations of financial markets since the summer. Earlier this week, stocks rallied on euphoria that a new, more powerful bailout was near, but the rally fizzled Wednesday when cracks began to appear among European nations over the terms of money being given to Greece.<\/p>\n

On Thursday, markets were mostly up again after the German approval of the 440 billion euro ($600 billion) bailout fund, intended to keep the crisis from spreading beyond Greece and Portugal to other European countries. Several other nations still have to ratify the agreement, but it now looks likely to be in place by the end of October.<\/p>\n

Even this fund, however, is already seen as inadequate. Some worry that it still fails to fully address one of Europe\u2019s most pressing needs: fully recapitalizing its banks.<\/p>\n

Now there is talk of enhancing the fund\u2019s firepower by allowing the European Central Bank to leverage its assets to buy up troubled government debt from the financial system. That would serve mostly to shift the debt from European banks to taxpayers.<\/p>\n

\u201cClearly something is cooking, but the markets will eventually choke on the taste,\u201d said George Magnus, an economist at UBS in London. \u201cIt is about getting banks off the hook, but the darker side is it\u2019s not doing anything real.\u201d<\/p>\n

Not everybody shares this view. Some argue that Europe is actually in better shape than the United States. Debt levels are painfully high in European countries like Italy, Ireland and Greece, but overall euro zone debt as a percentage of gross domestic product is 85 percent, less than the 93 percent level in the United States.<\/p>\n

Also, European consumers did not go on the same borrowing binge, so their retrenchment need not be so severe.<\/p>\n

\u201cWe need to do a lot to get over the crisis,\u201d said Holger Schmieding, an economist at Berenberg Bank in London. \u201cBut once we are over it, it will be the U.S. facing years of fiscal retrenchment, not Europe.\u201d<\/p>\n

A resolution of the crisis could bolster confidence in these battered economies, and lead to a return to positive growth. But the danger is that the strict austerity measures being adopted will only worsen economic downturns that some think could drag on for at least a decade in Greece, Portugal and Spain. Stagnant economies only make it harder for governments to pay down their debts.<\/p>\n

Germany pulled itself around after years as the \u201csick man of Europe,\u201d with high unemployment and sluggish growth. In the early 2000s, while the countries of Southern Europe spent beyond their means, the German government initiated a series of structural reforms, deregulation and wage adjustments that helped it become an economic powerhouse.<\/p>\n

But it is unclear how other European nations like Portugal and Spain are to achieve a similar makeover.<\/p>\n

The 440 billion euro bailout, even if enhanced, amounts to \u201cBand-Aid city,\u201d said Carmen Reinhart, senior fellow at the Peterson Institute for International Economics.<\/p>\n

\u201cFor a few weeks it buys tranquillity,\u201d she said, \u201cbut it does not get at two critical issues: it does not reduce the massive debt overhang and it does not restore growth.\u201d<\/p>\n

Longer term, some political leaders and economists are pushing for a more integrated economic, fiscal and political union in Europe \u2014 what they see as the only real solution.<\/p>\n

\u201cI don\u2019t think little steps are credible here,\u201d said Kenneth Rogoff, a Harvard economist who co-wrote a book about debt crises with Ms. Reinhardt. \u201cThere needs to be a United States of Europe at the end of this, and it may well not include everyone in the euro zone.\u201d<\/p>\n

\u201cThey were thinking they had 20 years to get there,\u201d he said, \u201cand instead they have 20 weeks.\u201d<\/p>\n

Joshua Brustein contributed reporting.<\/p>\n

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By GRAHAM BOWLEY and LIZ ALDERMAN
Last Updated: 6:22 HAEC http:\/\/www.nytimes.com\/<\/p>\n

It has happened time and again in recent months as Europe\u2019s debt crisis has played out. Stocks stage a strong comeback on expectations that a solution has been found. Then they quickly resume their decline as hopes dissipate, leaving investors […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[9],"tags":[338,337,198],"class_list":["post-1642","post","type-post","status-publish","format-standard","hentry","category-english","tag-crisis","tag-europe","tag-new-york-times"],"_links":{"self":[{"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/posts\/1642","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/comments?post=1642"}],"version-history":[{"count":2,"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/posts\/1642\/revisions"}],"predecessor-version":[{"id":1645,"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/posts\/1642\/revisions\/1645"}],"wp:attachment":[{"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/media?parent=1642"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/categories?post=1642"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lacanquotidien.fr\/blog\/wp-json\/wp\/v2\/tags?post=1642"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}