First Bush and then Obama fought America's economic meltdown by pouring money into the US economy. Most now believe they succeeded in downgrading a potential depression into a major recession as America begins the decadal challenge of tackling fiscal imbalances.
The European Union also got swept up in what became a global meltdown and, like the US, most European states went the financial "junk shot" route of pumping money into their economies. It wasn't enough, however, to salvage the weaker, more profligate EU members notably Greece (with Spain, Portugal and Ireland still waiting in the wings). Greece couldn't spend its way out of the mess, it simply couldn't raise the money, and so it teetered between being bailed out by the IMF or the European Union. Faced with the havoc an IMF bailout could cause the Euro, the EU reluctantly took on the burden of aiding Athens.
The Greek fiasco sent a shockwave throughout the capitals of Europe and a tide change in attitudes of how to respond to their financial problems. Now, instead of stimulus spending, Britain, Germany and others are reversing course and opting for austerity. Europe seems poised to repeat Japan's lost decade. From The Guardian:
...We're entering a long period of economic stagnation," said Guy Verhofstadt, the former Belgian prime minister who leads the Liberal caucus in the European parliament. "That will be the main problem for years. Europe is the new Japan."
To an extent it is the speed and suddenness of change in their governments' approach, as well as the effects on their pockets and job security, that has most worried Europeans.
Just a few months ago, before they had fully digested the implications of the Greek crisis, Europe's G20 nations remained, for the most part, wedded to Keynesian stimuli (maintaining government spending) as the way to nurture their economies back to growth. Olli Rehn, the European commissioner for economic and monetary affairs, admitted last Monday, at a meeting of EU finance ministers in Luxembourg, that the turnaround had been very abrupt
"One can feel the change of tone in the G20 from fiscal stimulus to fiscal exit, and our policies are an example of this," he said.
In [the UK], also, political leaders have changed tack with extraordinary speed as Gordon Brown has ceded control of policy to the Cameron-Clegg coalition. Before the election on 6 May, Brown regularly taunted Cameron, saying he was the only politician in Europe calling for cuts at this stage of the economic cycle. At his spring conference in March, Nick Clegg declared: "We think that merrily slashing now is an act of economic masochism. If anyone had to rely on our support, and we were involved in government, of course we would say no."
Now, citing Greece as the reason why everything has changed, Clegg is fully signed up to the Tory-Lib Dem coalition's initial £6.2bn of cuts for this year and embryonic plans for far worse to come. On Monday, when Cameron warned that the economy was in a far worse state than he had imagined, he felt able to say that he was now part of the international economic mainstream. "Almost every major country in the world is focusing on the need to cut their deficits," the prime minister said.
But to suggest there is international consensus is way wide of the mark. Across the Atlantic there is, in some quarters, dismay that EU governments are now taking action in direct contradiction to the approach that the G20 settled upon at the height of the global economic crisis.
Last week the message from the US Treasury department was clear: too much austerity, too fast, could damage the word's fragile economic recovery.
...The wrong message on deficits", thundered an editorial in the New York Times. The piece went on to point out: "The sudden fierce enthusiasm for fiscal austerity, especially among stronger economies, is likely to backfire, condemning Europe to years of stagnation or worse." The New York Times top columnist, Paul Krugman, who has won a Nobel prize for economics, took the same line. He has been a trenchant critic of a rush to austerity, believing that only government stimulus to boost consumer demand will pull the American – and global – economies out of the mire.
Krugman took to his blog to ram home the point. "The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered – specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs... not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn't) some time in the future. Utter folly posing as wisdom. Incredible."
And what of Canada? Is Harper going to be our homegrown Angela Merkel, Canada's Swabian Housewife? Harper seems poised to sound the economic "all clear" and treat Canadians to the lash of austerity just like the panicked Europeans. Are we really immune to the global dimensions of what the Euros do? I doubt it. This may not be the time for deficit fighting in Canada. Then again, our "economist in chief" has bungled virtually every call since he slithered into power. Remember that the Prince of Darkness wasted no time slashing government revenues, defunding the government and leaving it vulnerable to global economic upheaval. This same guy didn't even see the meltdown coming until it was right on top of us. This clown prince then responded with a blatantly stupid "Pinata Budget" (supported, of course, by the Conservative-Lites) that squandered rather than invested government stimulus funds ensuring we'll be left with a massive debt and no commensurate returns when it comes time to pay it all back. So why would anyone assume that Wrong-Way Corrigan of 24 Sussex Drive has the remotest clue of how to bring Canada out of this recession? All this jerk knows how to do is drive us straight into the ditch.