Solving the European economic crisis really matters to the United States. In addition to Europe being the largest market for U.S. products, the continent faces a largely similar dilemma to the one happening in our country: having to choose between economic growth and government cuts.
There is a historical debate on how to solve an economic crisis: whether by solely decreasing government expenses to resolve the deficit or promoting economic growth and tackling the deficit in the long-term. The alternatives are economic contraction or growth.
For several years, Europe addressed the crisis with economic austerity measures imposed by Germany and France. The strategy did not solve Greece’s burning crisis, nor did it provide any confidence for countries like Spain, Portugal and Italy to shape up their economies.
Europe is suffering in the same way developing nations did for decades with the prescriptions of the International Monetary Fund (IMF), which is currently also proposing austerity. This is a medicine that obviously kills patients instead of curing them.
Elections in France and Greece shifted the balance of European leadership. Now, except for Germany, these leaders are receptive to emphasizing economic stimulus over sending economies into recession.
That is exactly what the Congressional Budget Office (CBO) warned two days ago, when it estimated the impact of budget cuts and tax hikes scheduled for early 2014. The CBO estimated that GDP growth will equal 0.5% and the economy will contract 1.3%. This is no way to grow.
We think there must be a strategy that combines some budget cuts with policies that aggressively promote job creation.
Of course, for this to happen, we would need legislative bipartisan agreement that sets aside ideological dogma, giving rise to a much-needed pragmatism that allows everyone to see reality as it is. Achieving this compromise is virtually impossible in the inflexible environment that reigns over Congress today. However, the fact that this is challenging does not mean it is not a reasonable path.