This, Mr. President/President-elect, is the world economy you are going to spend the next four years dealing with. The good news is that things appear more stable than they did during the deep downturn at the start of 2009 or even at the height of the European crisis last summer. The bad news is that other regions of the world do not seem poised to take over as leaders of global growth.
We can start with Europe, the world’s other bastion of liberal, industrialized democracy — and, in the last couple of years, a giant economic basket case that has sucked away whatever momentum the U.S. economy might have gotten going.
Europe is something of a contradiction now. Its authorities, particularly at the European Central Bank, have finally seemed to act on a scale, and with a resolve, that will prevent an unraveling of the euro zone, a potentially disastrous outcome for the world economy and financial system. One simple measure of market confidence in the European project is the borrowing costs for Spain, which spiked over 7.5 percent (for a 10-year bond) in July. Since the ECB announced in early September a new program to buy bonds, Spanish yields have bounced around between 5.5 percent and a bit over 6 percent, a more manageable level.
Less promising is the situation in Greece, the most financially troubled member of the euro zone. The nation’s parliament is set to vote this week on yet more fiscal austerity in a nation that already has 25 percent unemployment and regular episodes of violence tied to extremist political factions. A two-day general strike is scheduled for this week, and the vote itself is in doubt, and yet another Greek government could fall if the votes aren’t there to approve another painful package of austerity mandated by international lenders. If there is a new wave of the European crisis, it will likely have its roots in Athens.
But for now, markets are persuaded that European leaders will do what it takes to hold their union together, and that confidence reduces the pressures that threaten to rip the continent apart. So there is reason to hope that Europe will, at the least, not be a persistent drag on U.S. growth over the next four years. Now if only it could return to economic growth: Most of the continent is in recession, pulling down global markets and U.S. exporters’ prospects. So, in making your agenda for the next four years, Mr. President/President-elect, just cross your fingers that European leaders don’t backslide in their commitments to each other — and don’t count on Europe becoming a leader of global economic growth.