European political leaders have garnered much of the blame for the continuing crisis of the euro, consistently failing to act with enough speed or severity to calm the markets. But the current panic has been partly produced by American politicians, whose noisy squabbling over the debt ceiling has combined with the prospect of another United States recession to undermine the potential for global growth.
It is that prospect ? that Americans will again retrench and stop buying goods from China and Europe and everywhere else ? that is putting new pressure on debt-ridden euro zone economies, most recently Italy and Spain.
Telephone lines were buzzing on Sunday, with heads of government, economic ministers and central bankers from Asia to Europe to the US discussing what might be usefully said before the markets? opening on Monday. They all seem to agree about one thing, however: the need to defend the idea that the US remains a reliable credit risk, despite a downgrade of a notch by Standard & Poor?s.
But the United States? problems, including the probability of a double-dip recession, have depressed forecasts for growth. ?There is a real psychosis, but everything is mixed, and that creates the problem,? said Cedric Thellier, an economist at the French investment bank Natixis.
?It?s the fear of the markets, so the rates climb and a negative spiral begins.?
It is less clear how Europe can stop the downward spiral. The European Central Bank can buy some Italian and Spanish bonds, but Italy and Spain together are too big to be bailed out. And Europe ? dilatory and incremental, requiring unanimity ? does not do shock therapy. Europe already has historically lower growth than the US, and the likelihood that it will continue to slow will make the debt crisis worse.
As much as the American drama and talk of a new recession added to Europe?s ills, Europeans themselves must accept most of the blame. The last in a series of emergency summit meetings, all intended to calm markets and end the crisis, was less than three weeks ago, on July 21. Steps taken then seemed to calm the markets. But everyone knew that the problem was not
really solved, and that the fund?s new powers had to be drafted and ratified by member parliaments, which would take until autumn, and that Spain and Italy remained vulnerable.