Wonkbook: What would the Republicans do about Europe?

The big news out of last night's GOP debate was that a candidate who won't win couldn't remember the third thing on a list of things he wouldn't be able to do even if he did win. Video here. But the more important story is what the candidates who might win had to say about the crises they might actually face.

Republican presidential candidates former Pennsylvania Sen. Rick Santorum, left, Rep. Michele Bachmann, R-Minn., former House Speaker Newt Gingrich, former Massachusetts Gov. Mitt Romney, businessman Herman Cain, Texas Gov. Rick Perry, Rep. Ron Paul, R-Texas, and former Utah Gov. Jon Huntsman, pose before a Republican presidential debate in Michigan onNov. 9. (Paul Sancya - AP) Herman Cain, the unlikely leader in the polls, got the night's first question. "Italy is on the brink of financial disaster," said Maria Bartiromo. "It is the world's seventh largest economy. As president, what will you do to make sure that their problems do not take down the U.S. Financial system?"

His answer was 176 words. None of those words were "Italy," "Europe," or "banks." Here's what we did get: "Just like a dollar must be a dollar when we wake up in the morning, just like 60 minutes is in an hour, a dollar must be a dollar." And: "This administration has done nothing but put stuff in the caboose, and it's not moving this economy." These lines sound slightly garbled, as if Cain was struggling to answer an unexpected question. In fact, they're both lines that Cain has used many times before, in response to questions that had nothing to do with Italy or Europe.

Bartiromo turned next to Romney. Same question. "Should we allow Italy to fail?" Romney, at least, had prepared. "We don't want to step in and try and bail out their banks and bail out their governments," he said. "They have the capacity to deal with that themselves."

But what if they don't? That's the possibility that markets are increasingly grappling with. Gavyn Davies, chairman of Fulcrum Asset Management, put it starkly in the Financial Times. "Taken together, the four most troubled nations (Italy, Spain, Portugal and Greece) have a combined current account deficit of $183 billion. Most of this deficit is accounted for by the public sector deficits of these countries, since their private sectors are now roughly in financial balance. Offsetting these deficits, Germany has a current account surplus of $182 billion, or about 5 per cent of its GDP. Viewed in this light, it is clear that there needs to be a capital account transfer each year amounting to about 5 per cent of German GDP from the core to the periphery. Without that, the euro will break up."

But it's hard to imagine a world in which the Eurozone is dissolving and the United States is recovering. Just as our housing crisis pushed Europe into recession, their political crisis could swiftly destabilize our economy. And though Romney was more conversant on the European debt crisis than Cain, he didn't have a contingency plan, either.

"We've got to fix our deficit here," he said. But if Europe implodes and American businesses start firing workers and hunkering down and American consumers begin hoarding money and putting off purchases and then the American government begins cutting its spending, too, where exactly is the demand supposed to come from? Where is the recovery going to come from? It's certainly not going to be exports to Europe.

As in 2008, we're entering another period in the global economy where the unthinkable might actually happen. But we don't seem to be thinking about it very hard. When you talk to participants in the 2008 financial crisis, they lament the seven months between when Bear Stearns fell and when Lehman collapsed. It was wasted time, they'll tell you. We saw the crisis beginning and we had time to prepare for it but we did nothing of the kind. Everyone wanted to believe it would be alright, that we could go on pretty much as usual. Much as we're doing now.

It's still too early to predict the endgame in Europe with any certainty. But what we can say with certainty is that American politics is pretty much going on as usual.

Top stories

1) Italy's reaching the danger zone, reports Howard Schneider: "Italy’s financial condition hit red-alert levels Wednesday, touching off some of the same dynamics that caused Greece, Ireland and Portugal to seek international bailouts in recent months and driving down global stock markets alarmed about the possible fallout. The interest rate that Italy must pay to borrow money -- a measure of the country’s viability -- spiked to more than 7 percent for longer-term bonds. This jump seemed to confirm the worst fears of European officials: that after months of trying to contain the euro region’s debt crisis to a handful of smaller economies, the financial contagion had spread to a major country whose $2.6 trillion in outstanding debt would make it extremely difficult to bail out."

2) Republicans say the supercommittee is at an impasse, report Lori Montgomery and Felicia Sonmez: "A senior Democrat on Wednesday hailed a decision by congressional Republicans to embrace higher taxes as 'a breakthrough' in the year-long battle over the national debt. But that development only seemed to intensify partisan bickering over the shape of a debt-reduction blueprint. With a Thanksgiving deadline less than two weeks away, Senate Republicans declared talks over the debt at an impasse and accused Democrats of walking away after the GOP for the first time offered to raise taxes above current levels to help restrain future borrowing...Democrats denied the charge and insisted that they were still working toward a compromise. But they said a deal depends on Republicans embracing far larger tax increases than they have so far been willing to accept."

3) Some Republicans want to curtail benefits to the wealthy, report Marin Cogan and Manu Raju: "Republicans, long criticized by Democrats as a party that coddles the rich, are now eyeing a handful of proposals that target millionaires on subsidies, tax deductions and other federal benefits. In both chambers, lawmakers are considering legislation introduced by Sen. Tom Coburn (R-Okla.) and Rep. James Lankford (R-Okla.) to deny unemployment insurance benefits to millionaires. Coburn is also proposing cuts to farm subsidies for the wealthy while other lawmakers are looking to cut direct payments to farmers altogether. The House-passed GOP budget earlier this year would further limit Medicare payments for wealthy senior citizens -- and some members are now discussing applying a similar measure to other entitlements."

4) The supercommittee's real deadline is much sooner than November 23, reports Naftali Bendavid: "The Nov. 23 deadline could be misleading. The Congressional Budget Office must provide an official estimate of how much the plan would cut the deficit before the committee members can vote on it. How long that would take depends on how novel the proposal is. If it consists of ideas that have been long-discussed and the CBO has already evaluated, the agency’s estimate may only take a few days. If it contains newer ideas, it could take longer. There’s yet another catch. The law creating the supercommittee, the Budget Control Act, says committee members must have 48 hours to look at any proposal before voting on it. That means the CBO must evaluate, or 'score,' the proposal by Nov. 21--just 12 days from now."

5) Rick Perry made a potentially campaign-ending gaffe at last night's debate, report Amy Gardner and Philip Rucker: "Texas Gov. Rick Perry made the worst stumble of the presidential campaign on Wednesday, struggling awkwardly to remember the name of a third federal agency he would eliminate if he became president. At a time when Perry’s team was hoping desperately for a breakout, or at least mistake-free, performance to revive his ailing campaign, the governor’s gaffe could well do lasting damage...It is three agencies of government when I get there that are gone,' he said, beginning to lay out one of the staples of his stump speech. 'Commerce, Education, and the -- what’s the third one there? Let’s see,' Perry said. 'Commerce and, let’s see,' he continued. 'I can’t. The third one, I can’t. Sorry. Oops.'"

Top op-eds

1) Greece can and should leave the Euro, writes Stergios Skaperdas: "Default at Greece’s initiative, by contrast, would allow Greece to influence its destiny. The process would be largely governed by Greek law, instead of its being a matter of private discussions between the German chancellor and the French president, and would thus lead to a more sustainable debt burden. Because of problems with financing Greek banks and pension funds, default would be likely to mean leaving the euro. But that’s a good thing, as it would give Greece control of its own monetary policy. This is especially important now, with Greek credit and liquidity severely restricted, most critically in its vital small-business sector...Managing the transition from one currency to another is well understood: the change of currencies that followed the breakup of Czechoslovakia, for example, took several weeks and by all accounts went well."

2) The Euro crisis could spur a rise in far-right extremism, writes Dani Rodrik: "It is the extreme right that has benefited most from the centrists’ failure. In Finland, the heretofore unknown True Finn party capitalized on the resentment around eurozone bailouts to finish a close third in April’s general election. In the Netherlands, Geert Wilders’ Party for Freedom wields enough power to play kingmaker; without its support, the minority liberal government would collapse. In France, the National Front, which finished second in the 2002 presidential election, has been revitalized under Marine Le Pen...Political movements of the extreme right have traditionally fed on anti-immigration sentiment. But the Greek, Irish, Portuguese, and other bailouts, together with the euro’s troubles, have given them fresh ammunition. Their Euro-skepticism certainly appears to be vindicated by events."

3) A revolution in consumer health care is soon at hand, writes Frank Moss: "It would begin with a 'digital nervous system': inconspicuous wireless sensors worn on your body and placed in your home would continuously monitor your vital signs and track the daily activities that affect your health, counting the number of steps you take and the quantity and quality of food you eat. Wristbands would measure your levels of arousal, attention and anxiety. Bandages would monitor cuts for infection. Your bathroom mirror would calculate your heart rate, blood pressure and oxygen level...The United States should commit to a 'moon shot' for consumer health to make this imagined world a reality. In addition to the health benefits, we would gain revenue from exports of consumer health products to countries like China and India, which are likely to become enormous health care markets."

4) Saving the Euro would cost less than letting it die, writes Clive Crook: "What politicians have built, you might argue, politicians can unbuild. It isn’t nearly so easy. When you put a currency union together, parities are fixed. When you take one apart, they are freed: Why else dismantle the union but to let exchange rates move? That obvious asymmetry has large consequences. Who would hold a deposit in an Italian bank if Italy were expected to abandon the euro? The new lira, in which those deposits might soon be denominated, would depreciate at the instant of its creation. The mere prospect would trigger a systemwide bank run. This is to say nothing of the vast legal and technical complications that abandoning the euro would involve...Financial integration in the euro area is total. Borders to financial flows don’t exist. Transactions are virtual and instantaneous."

New music interlude: "Origins" by Tennis.

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Still to come: It's not clear Italy even could be bailed out; the Supreme Court could decide on health care cases as soon as today; Rick Perry could have killed his own campaign; the Obama administration may push to reroute the Keystone pipeline; and a deer crashes through a window and into a restaurant.

Economy

It's not clear that Italy is bailout-able, writes Brad Plumer: "Italy’s public debt currently amounts to some 1.9 trillion euros -- far too large for the country to be bailed out by the European Financial Stability Facility or by the IMF. At best, some economists say, those institutions might be able to keep Italy afloat for a few months. (The European Central Bank could also step up its purchases of Italian debt.) But no one knows how long that relief would last. Italy has more than 150 billion euros worth of debt coming due between February and April. Even if it can survive its short-term woes, it’s unclear whether the country can sort itself out before then...The one metric on which Italy scores horribly, Gros finds, is governance, especially on corruption and rule-of-law measures. Unfortunately, most of the reforms being foisted on Italy don’t really touch those issues."

Some Republicans want out of the tax pledge, report Russell Berman and Bernie Becker: "Grover Norquist’s grip on the House Republican Conference is loosening. A growing number of GOP lawmakers have disavowed Norquist’s pledge against supporting tax increases in recent days, telling The Hill they no longer feel bound to uphold a document that they signed, in some cases, more than a decade ago. Norquist’s advocacy group, Americans for Tax Reform, lists 238 House signers of its Taxpayer Protection Pledge, but several House Republicans, and at least one Democrat, now say the anti-tax group is being deceptive and want their names taken off the list...In its publicly displayed list of signers 'in the 112th Congress,' Norquist’s group includes several members who say they have specifically refused to sign the pledge during their most recent campaigns."

European pressure on Italy and Greece isn't producing results, report Michael Birnbaum and Anthony Faiola: "From sending an international team to babysit Italy’s economic measures to threatening Greece with expulsion from the euro zone, French and German leaders are pushing as never before, and European Union officials have joined in. But their exhortations have provoked chest-puffing backlash from Italy and Greece, and analysts warn that heavy-handed pressure may do little to solve Europe’s short-term problems. That was dramatized Wednesday in Greece, where another day of political deadlock yielded no resolution on who would become the country’s next prime minister despite warnings from European leaders that Greece will not receive its desperately needed bailout money until it resolves its leadership stalemate and approves the bailout plans."

A federal judge thinks the SEC's settlement with Citigroup is too generous, reports David Hilzenrath: "A federal judge Wednesday challenged the SEC’s plan to settle a fraud case against Citigroup for $285 million, saying that the deal would recoup only a fraction of investors’ losses and would leave the firm free to proclaim its innocence in private lawsuits over the remaining damages. The judge used the Citigroup case to mock the SEC’s traditional way of doing business -- allowing defendants to settle without admitting or denying wrongdoing. The unproven allegations, U.S. District Court Judge Jed S. Rakoff said, 'are no better than rumor or gossip.'...It was the third case since the financial meltdown of 2008 in which Rakoff sharply questioned the value of enforcement actions brought by the Securities and Exchange Commission."

Two Senators want to reign in pay at Fannie and Freddie, report Alan Zibel and Nick Timiraos: "U.S. lawmakers are seeking to rein in pay for executives at Fannie Mae and Freddie Mac, the mortgage-finance giants that remain on taxpayer life support, nearly two years after the government approved the firms' compensation arrangements...Their top executives received nearly $13 million in cash awards granted at the start of 2011 based on regulators' assessment of corporate and individual performance goals. Sen. John McCain (R., Ariz.), a longtime critic of Fannie and Freddie, said Wednesday it was 'outrageous' that executives 'would expect multimillion-dollar bonuses,' given the size of their rescue. Sen. McCain and Sen. Jay Rockefeller (D., W.Va.) introduced a measure to bar the two firms from using federal money to fund compensation for the firms."

Adorable animals being reckless interlude: A deer runs through a window into a Mexican restaurant.

Health Care

The Supreme Court could decide today on which health care cases to take, reports Jennifer Haberkorn: "The nine Supreme Court justices could decide as soon as Thursday whether -- and how -- to wade into the politically charged legal waters of health reform. The Obama administration has asked the court to jump in, so it appears more than likely the justices will agree to decide whether the health law’s requirement that nearly all Americans obtain insurance is constitutional. The justices will have to decide which of four pending cases challenging the individual mandate the court should hear and whether to take up other aspects of the law as well. The justices are scheduled to meet for a private conference Thursday, and they could make a decision on how to go forward."

Domestic Policy

Obama is making federal agencies cut back on swag, reports Ed O'Keefe: "First came a two-year pay freeze for federal workers. Now, the tote bags have to go, too. And the mugs, mouse pads, T-shirts and other items that bear the names of agencies and often are given away to employees and the general public. The reduction in swag is part of President Obama’s order Wednesday that agencies must make 20 percent spending cuts on government-paid travel, vehicles and technology -- and the freebies handed out to help promote an agency’s mission. The executive order is part of the administration’s effort to cut spending and the latest in a series of executive actions meant to help jump-start the sputtering economy. Agencies have until mid-December to find ways to cut travel, equipment and technology budgets."

The veterans jobs proposal shows the difficulty of cutting tax credits, reports Rosalind Helderman: "Politicians in both parties have repeatedly called for a simpler, flatter tax code with fewer of the loopholes, credits and deductions that make tax filing a nightmare and deprive government of billions in revenue. But when the Senate votes on Thursday on a portion of the president’s job bill -- one with broad bipartisan support -- a key element of the measure will be a brand-new tax credit, this time for businesses that hire unemployed veterans. Tax experts say the hiring credit is a particularly stark example of how irresistible the tax code has become for politicians seeking to advance popular policy goals. And, they say, it shows how difficult it would be to weed out popular credits and deductions."

Ron Wyden is fighting a new anti-piracy bill, reports Jennifer Martinez: "Can one senator stop the speeding locomotive of the PROTECT IP Act, a controversial online copyright bill backed by Hollywood, the Chamber of Commerce, pharmaceutical makers and a bipartisan group of 40 senators? Sen. Ron Wyden hopes so. The Oregon Democrat is threatening to filibuster the PROTECT IP Act if it reaches the Senate floor unchanged by the end of the year...he PROTECT IP Act is aimed at shuttering foreign websites that peddle pirated movies, knockoff Louis Vuitton handbags and fake Viagra. It’s got some major backers touting the need to protect American content and goods from online piracy. It also has some detractors -- such as Internet companies that would be on the hook for enforcing parts of the law."

Open immigration would grow the world economy dramatically, reports Mariana Cristancho-Ahn: "If political leaders around the world are looking for a source of world economic growth, they should consider the impact of global migration in the economy. A study conducted by the Center for Global Development in Washington D.C. estimates that the gains of eliminating barriers to labor mobility could be in the range of 50% to 150% of world GDP and that it could be measured in “tens of trillions of dollars. 'Migration barriers massively impoverish the world,' said Michael Clemens, the author of the study and Senior Fellow at the Center for Global Development. 'Even a small relaxation of those barriers would add more value to the world economy than the elimination of all our policy barriers to trade and all barriers to all kind of capital movements.'"

Stand-up interlude: Maria Bamford on "Conan".

Energy

The Obama administration could try to reroute the Keystone pipeline, reports Juliet Eilperin: "The Obama administration may reassess the proposed route for a major oil pipeline that would stretch from northern Canada to the Gulf Coast, according to sources familiar with the deliberations, a move that could delay the contentious permitting process for more than a year. The State Department has identified a route that traverses six states -- and runs above Nebraska’s Ogallala aquifer -- as its 'preferred alternative,' among more than a dozen possibilities. But opposition has mounted in Nebraska and elsewhere along that path. The Nebraska legislature is in special session to consider options for influencing the pipeline’s route."

Work on the highway bill is starting, reports Adam Snider: "The Senate Environment and Public Works Committee is set to mark up a two-year highway and transit bill Wednesday morning, and it should be a breeze. What happens after the markup is the big question. As with so many issues in Congress, it comes down to money. 'We’re facing some problems, and the question is how to pay for it,' Finance Committee ranking member Orrin Hatch (R-Utah) told POLITICO. The EPW bill needs $12 billion in additional funds to make up for projected Highway Trust Fund shortfalls. EPW Chairwoman Barbara Boxer (D-Calif.) and Senate Majority Leader Harry Reid wanted to fix a mistake in the 2009 health care law that let some higher-income families qualify for Medicaid. But that offset is destined to be part of a contractor payment bill -- leaving senators back at Square One."

The US and China are bracing for a solar trade war, reports Keith Bradsher: "The United States and China are gearing up for a trade war that could catch American users of solar energy in the crossfire.
The Commerce Department in Washington on Wednesday opened an investigation sought by American manufacturers who accuse the Chinese of 'dumping' solar panels into the United States at prices, aided by government subsidies, lower than the cost of making and distributing them. Anticipating that move, the government-controlled Chinese solar industry has been unusually vitriolic this week. A trade group accused the White House of turning the commercial complaint into 'a political farce, which is very likely a publicity show initiated by the Obama administration for the coming election.'"

Mitt Romney's record as a "smart growth" advocate is all but forgotten, writes Alec MacGillis: "The past decade has seen the spread of a faith concentrated in the country’s more progressive-minded cities: the religion of smart growth. Its adherents are planners, environmentalists, and builders who believe development should be focused in existing communities rather than sprawling into the countryside. For them, good development is 'infill,' 'new urbanist,' and 'transit-oriented,' and bad development is 'greenfield,' 'car-dependent,' and 'half-acre lots.' They loathe cul-de-sacs and love light rail. And, for several years, they were proud to count as one of their own Mitt Romney...Romney and Foy wasted little time in putting smart-growth policies to work. The state, they declared, would take a 'fix-it-first' approach to highway spending--repairing existing roads instead of building new ones."

Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.