[Insert European economy here] in deep ****

^They could even ask for bailout money like the p*rn industry

 

http://www.iht.com/bin/printfriendly.php?id=20764032
Is Europe 'in denial' on depth of crisis?
By Nelson D. Schwartz
Thursday, March 12, 2009

PARIS: Is Europe facing up to the still-rising peril that threatens the global economy?

After a burst of initial action last autumn, experts say policy makers on the Continent are moving too slowly to keep up with the worsening situation, unwilling to ante up for a big U.S.-style stimulus package or emulate unconventional monetary policy moves now under way in Britain, including buying up corporate and government bonds to help revive lending.

"They are in denial, and hoping that something from the U.S. will come along to help them out," said Thomas Mayer, chief European economist in London for Deutsche Bank. "The European system isn't designed for taking the unconventional policy measures that are now needed."

And it is no longer just private economists who are complaining about European caution. On Wednesday, President Barack Obama and his Treasury secretary, Timothy Geithner, appeared to turn up the heat ahead of this weekend's meeting of Group for 20 finance ministers and central bankers outside London, the last major meeting before the scheduled summit meeting of world leaders on April 2.

"I think it's very important for the American people to understand that as aggressive as the actions we are taking have been so far, it's very important to make sure that other countries are moving in the same direction, because the global economy is all tied together," Obama said. Geithner added, "Everything we do in the United States will be more effective if we have the world moving with us."

So far, European stimulus efforts are only a fraction of the size of the comparable American package.

Mayer estimates Washington's recently approved package of deficit-financed new spending and tax cuts, which is concentrated in the next two years, equals about 6 percent of the annual U.S. gross domestic product. That stands in contrast to 2.6 percent for Germany over a comparable period. Within the euro zone, the average stimulus equals 1 percent to 1.5 percent of GDP.

Deep historical divisions, as well as the complicated new agencies that undergird the European economy, have inhibited a stronger response.

German leaders are wary of what they see as the long-term danger of inflation if they borrow and spend too much, while Germany and other countries in the heart of Europe do not want to shoulder the burden for more troubled economies at the periphery, like Ireland or Greece.

"If a country were to need help, it's not clear if they should go to the European Union, the IMF or the ECB," said Philip Lane, a professor of economics at Trinity College Dublin, referring to the International Monetary Fund and the European Central Bank. "The answer seems to change day to day."

Europe also feels less urgency because the stronger social safety net in place on the Continent, which provides universal health care and a range of other government-supported services, softens the blow of rising unemployment. That's one reason the public mood is not as bleak as in the United States and less demanding that politicians act quickly.

What is more, aside from Britain, Ireland and Spain, Western Europe has never experienced the kind of housing boom and bust seen in the United States, limiting the debt burden on individual consumers.

Jobless rates, traditionally higher than in the United States, are expected to soar further, especially in Spain. Unemployment in the final quarter of 2008 stood at 13.8 percent but could rise to 17.2 percent by the end of 2009 and to nearly 20 percent next year, according to Santiago Carbó, a top analyst at Funcas, a Spanish economic research foundation in Madrid.

"We have a pretty bad situation with the major economies but nothing compared to Spain," he said.

Now, even veteran European observers are pressing for bolder action now. "Collectively, Europe needs to do more," said Erik Berglöf, chief economist at the European Bank for Reconstruction and Development. Berglöf praised earlier moves to stabilize the financial sector, but said, "I'm concerned about whether Western Europe will do enough to revive demand, which could help the economies of Eastern Europe."

This week, the president of the ECB, Jean-Claude Trichet, spoke optimistically about a coming pickup, but his own forecasters are more glum, predicting a contraction of two to three percent in 2009, and minimal growth at best next year.

Less than 24 hours after Trichet's speech on Monday in Basel, Switzerland, new data showed Europe's largest economies remain in free fall. German exports plunged 20.7 percent in January, while French manufacturing output fell 13.8 percent.

On Wednesday, Britain took the first major step in its so-called quantitative-easing, program, with the Bank of England purchasing £2 billion, or $2.8 billion, worth of government bonds. With short-term rates already at a record low of 0.5 percent, British central bankers hope this new approach will ease credit. In essence they plan to print £75 billion of new money over the next three months.

This program has won praise from the likes of Mayer and Simon Johnson, a former chief economist at the IMF who is a now a professor at the Massachusetts Institute of Technology. But the rules governing the ECB make it hard to replicate within the 16 nation euro zone.

That is because the ECB decides monetary policy, setting interest rates, while leaving fiscal policy and government spending to the 16 countries that use the euro as a currency. The ECB is forbidden from directly buying government bonds. Trichet insists that "our hands are not tied at all," but one member of the ECB board, Lorenzo Bini Smaghi, cast doubt on the appeal of the British strategy for Europe.

"If the ECB bought government bonds on the secondary market, that would be getting close to fiscal policy," he said. "And that would not be in the spirit of the ECB's founders."

Johnson said he was deeply worried by what he sees as a "tsunami" threatening Western Europe from falling dominos in Eastern Europe, even as industrial output and trade plunge across the Continent.

Johnson contends: "Americans are not great, but the Europeans are very bad at contingency planning. There's a fear that if you articulate it in public, the fear will become a reality."

"Some people think they will be 10 minutes late," he said. "I think they're going to be 10 years too late."

 

Eastern Europe is considered to be their own "subprime crisis"... The richer states are deluded to think they won't have to bail them out without consequences to their own economies.