It is no exaggeration to say that this week could be remembered as the week that Europe either pulled back from the cliff or careened off of it altogether.
On Sunday night, Mario Monti, the new prime minister of Italy, received his cabinet's approval for a tough package of reforms. Angela Merkel and Nicholas Sarkozy, the leaders of Germany and France respectively, are meeting in Paris to work out a plan for a tighter fiscal union -- a plan that, if it's well received, could lead to Germany and the European Central Bank mounting a rescue of the Eurozone. Buoyed by both the urgency of the moment and the nearness of a deal, Treasury Secretary Timothy Geithner is headed to Europe to try and push the crisis toward a resolution.
I've spent the last few days in Germany on a trip sponsored by the Friedrich Ebert Foundation. Initially, the topic of the trip was supposed to be the reforms Germany made to its manufacturing sector over the last decade. But the timing has meant that the future of the Euro has dominated. And over the course of about a dozen discussions with policymakers, the main thing I've noticed is that Germans just do not talk about this crisis the way anyone else does. Here are some of the differences:
- They seem serenely confident that it will all work out, and this will end in a stronger, more united, Europe. There's less panic than you would expect. Less panic, certainly, then there is among American economists and policymakers.
- History matters here. A lot. In America, we tend to think of the Eurozone as an economic entity. In Germany, it's also spoken of as an ideological entity -- a political project intended as an answer to centuries of wars and decades of uneasy peace. Giving up on it thus risks much more than mere economic chaos. It risks everything Europe in general, and the Germans in particular, have been working towards since the end of World War II.
- In part because history matters, France matters. The Germans are very sensitive to accusations that they're attempting to dominate Europe through economic means. To calm that fear, they have been very careful to stay in lockstep with France. That's likely to continue.
- But though Germans worry about the appearance of German power, they also worry abut the diminution of European power. Many see the Eurozone as a political project that assures Europe a loud voice in international affairs going forward. if it dissolves, they worry that they'll be drowned out in a conversation that increasingly take place between the United States and China, with India and Brazil vying with Europe to be heard. - But the Germans don't want to be saps, either. The question here isn't so much whether the troubled countries on the European periphery can pass plans to reduce their deficits and deregulate their labor markets. It's whether they can stick to them. That's why the Germans are intent on solving this through a new treaty that empowers some entity -- perhaps the European Commission -- to veto budgets that break the treaty's rules and penalize countries that run large deficits. Imagine you were a resident of Ireland: would you want to hand control of your budgets to bureaucrats in Brussels? Can you imagine anything like that passing in America?
- The German embrace of austerity raises an obvious question: If Southern Europe is to cut and tax, how will they grow? The German answer, put simply, is, "like we did." Ten years ago, the Germans are quick to note, unemployment in Germany was 10 percent and structural deficits were large. Germany was called "the sick man of Europe." They attribute their subsequent success to a series of painful reforms they made to their unemployment insurance system, their health-care sector, and other pieces of their social safety net. Many figure that if they could do it, so too can Southern Europe. In truth, it's probably not that easy -- Southern Europe doesn't have the industrial strength that Germany does, and no longer even controls its own currency levels -- but it makes sense to the man on the street.
- Germans also thinks that the market has somewhat exaggerated Europe's problems. Greece is a basketcase. But Italy is not. Nor is Spain, Portugal, or Ireland. These countries have too much debt, and in some cases, too many shackles on their labor markets, but they are being unfairly grouped in with Greece, when their problems are much more manageable. There is, incidentally, quite a bit of truth to this. Ireland was considered a model economy through much of the Aughts. Spain and Italy had declining debt-to-GDP ratios until the housing bubble popped and the world economy went into a tailspin.
- Germany survived the financial crisis without too much pain. The country's unemployment rate is below seven percent -- and falling. Deficits are going down, too. As such, I'm told that ordinary Germans, though concerned about the European crisis, are not gripped by the sense of panicked urgency you might expect if you were viewing this from afar. It's just not affecting their everyday lives yet, and they mostly assume their leaders will work something out.
All that said, it remains true that the situation is very precarious, and neither Germany nor the European Central Bank have committed themselves to the policies necessary to solve it. So I don't share the serenity of my hosts. But I'd sure like to.
1) European leaders are working on a deal to keep the Euro afloat, reports Steven Erlanger: "European leaders are working overtime on a tentative deal to try to save the euro, which they hope to complete at a crucial summit meeting in Brussels this week. But rather than one transformative leap, the deal will have several moving parts, together meant to show resolve to protect Italy and Spain, revise the economic governance of the euro zone and prevent further debt crises, officials involved in the talks say. The emerging solution is being negotiated under great pressure from the markets, the banks, the voters and the Obama administration, which wants an end to the uncertainty about the euro that is dragging down the global economy. In the process, European leaders will begin to change the fundamental structure of the union, creating a form of centralized oversight of national budgets."
2) Angela Merkel's approach to the crisis is under fire, reports Michael Birnbaum: "Every phrase that German Chancellor Angela Merkel and French President Nicolas Sarkozy utter Monday as they unveil proposals to reform the euro zone will be dissected for hints of what many want to hear most: plans to intervene quickly, and on a massive scale, to stop Europe’s financial crisis. But few inside Germany expect them to come. Merkel, widely seen as the woman in charge of Europe’s future, has repeatedly ruled out dramatic, speedy fixes. But if the French-German proposals do not produce just that, they could disappoint investors who have been banking on a solution -- potentially making the crisis even worse...As the tone inside Merkel’s office remains dead-set against the fastest ways to cap the crisis, a growing number of critics are complaining that she and Sarkozy aren’t moving quickly enough."
3) Senate Democrats are preparing a new funding mechanism for the payroll tax break, reports Siobhan Hughes: "Senate Majority Leader Harry Reid (D, Nev.) will unveil on Monday a new measure to extend an expiring payroll-tax cut, trying again after Democratic and Republican versions failed last week. Democrats plan to file a modified proposal intended to win over Republican lawmakers, according to Democratic Senate aides. Unless Congress acts, the employee payroll tax, which funds Social Security, will increase by two percentage points next year, to 6.2%...Democrats are still running the details past their own caucus, an aide said. Whether Democrats would try again to reduce the payroll tax to 3.1%, and give employers a break on the amount contributed for Social Security, remains unknown."
4) Unemployment is finally below 9 percent, reports Neil Irwin: "The unemployment rate plummeted to its lowest level in more than two years in November, according to a new government report that shows both promise and hazards for President Obama in the election year ahead. The jobless rate fell to 8.6 percent last month from 9 percent in October, the lowest level since the economic free fall in March 2009. Job creation was steady, with employers reporting that they added 120,000 people to their payrolls. But while the new jobs numbers are among several recent indicators pointing to the recovery becoming more solid, the economic landscape less than a year before the presidential election still holds peril for the administration. If current trends hold up into next year, Obama will be able to point to signs of economic progress."
1) The GOP nominee basically has to be cynical or stupid, writes Paul Krugman: "Think about what it takes to be a viable Republican candidate today. You have to denounce Big Government and high taxes without alienating the older voters who were the key to G.O.P. victories last year -- and who, even as they declare their hatred of government, will balk at any hint of cuts to Social Security and Medicare (death panels!). And you also have to denounce President Obama, who enacted a Republican-designed health reform and killed Osama bin Laden, as a radical socialist who is undermining American security. So what kind of politician can meet these basic G.O.P. requirements? There are only two ways to make the cut: to be totally cynical or to be totally clueless. Mitt Romney embodies the first option."
2) Renewable energy needs federal support, writes Arnold Schwarzenegger: "Don’t get me wrong -- we should not demonize fossil fuels. For more than 200 years, the United States has rightly invested in developing new sources of energy. From the land grants for timber and coal in the 1800s to the tax expenditures for oil and gas in the early 20th century to the investment in developing nuclear energy, support for energy innovation has always helped drive America’s growth. Renewable energies, however, have not been treated the same way. When the oil, gas and nuclear industries were forming, federal support for those energies totaled as much as 1 percent of federal spending. Subsidies available to the renewables industry today are just one-tenth of 1 percent...The conversation should be about leveling the playing field so that renewables are bound by the same rules as fossil fuels."
3) There are still some true leaders left in America, writes Steven Pearlstein: "Take Bair. Although a Republican and a Bush appointee, she quickly became the skunk at the deregulatory lawn party when she took over the FDIC in 2006. Although she failed in her efforts to shut down the subprime lending machine, her opposition to a plan, backed by the Fed and the Treasury, to reduce bank capital requirements, made it possible for U.S. banks to come through the ensuing financial crisis in better shape than those in Europe, where the new rules had been implemented. And when the Fed and Treasury decided to let Citigroup repay its TARP loan early and free itself from heightened regulator scrutiny, Bair refused to go along, insisting on a housecleaning of executives. Under Bair, the FDIC went from being the regulatory equivalent of a cleanup crew to a full-fledged partner in the policymaking process."
4) NY Fed chief William Dudley should resign, writes Simon Johnson: "The New York Fed has long had three kinds of directors: Class A represent banks that belong to the Federal Reserve system (and typically will be chief executive officers of such institutions); Classes B and C are supposed to be people who do not work at banks overseen by the Fed and represent agriculture, commerce, industry, services, labor and consumers...The Dodd-Frank reform legislation recognized the sensitivity of this perceived conflict and mandated that only Class B and C directors could participate in choosing the regional Fed presidents...But Dudley, a former Goldman Sachs chief U.S. economist, was appointed by the board of the New York Fed under the rules in existence in January 2009...Dudley should resign and make way for someone appointed under the new rules."
Music discussion interlude: Eric Bachmann explains, plays "Web in Front".
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Still to come: The Fed is revamping its communications; Republicans want to fund a "doc fix" by cutting health reform; the White House is eager to avoid a shutdown fight; the EPA's watering down its boiler admissions rule; and a puppy that sneezes on command.
The Fed is revamping its communications strategy, report Jon Hilsenrath and Luca di Leo: "Federal Reserve officials are close to completing an overhaul of how they signal their policy plans to the public. They are likely to spend much of their Dec. 13 meeting ironing out unresolved pieces of the new communications strategy and seem on pace to unveil it early next year. They have two major objectives: Be more explicit about the Fed's goals for inflation and employment, and articulate more clearly the interest-rate strategy to meet those goals. The new communications plan is more than simply public relations. The right words from a central bank about goals and plans for interest rates can move markets, interest rates and the broader economy. And Fed Chairman Ben Bernanke has long wanted to reduce the public guessing games about the Fed's goals and possible actions."
The White House is pushing for Richard Cordray's confirmation, report Felicia Sonmez and Ylan Mui: "White House officials Sunday issued a new report aimed at ramping up pressure on Senate Republicans to support President Obama’s choice to head the Consumer Financial Protection Bureau, as key GOP lawmakers renewed their vow to block any nominee unless broad changes are made to the watchdog agency. The new push by the Obama administration comes as the full Senate is expected to vote Thursday on the nomination of former Ohio attorney general Richard Cordray to head the CFPB... Members of the Senate banking committee approved Cordray’s nomination in October in a party-line vote, but 45 of the chamber’s 47 Republicans have penned a letter to Obama pledging to oppose any nominee unless the bureau’s powers are curtailed."
Futures firms are facing stricter rules, reports Scott Patterson: "Futures firms would be sharply restricted in how they treat their customers' cash under new rules a federal agency is expected to approve Monday, marking the first regulatory shift in response to the recent collapse of MF Global Holdings Ltd. If approved, the changes would represent a change in course for the Commodity Futures Trading Commission, which set aside the proposal earlier this year amid heavy lobbying by MF Global's then-chairman, Jon S. Corzine, and others in the futures industry. Top on the agency's list of proposed limits: a ban on so-called internal repurchase agreements, or repos, in which one part of a futures firm swaps customer assets for securities such as municipal bonds or foreign-government bonds held at another part of the firm, pocketing the higher interest rates the securities yield."
This year's economics Nobelists aren't clear liberals or conservatives, reports Jeff Sommer: "Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations -- which maintains that people use all the information available in making economic decisions -- proves that Keynes had it wrong, these commentators say. It would be a provocative thesis -- if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve. They even have some ideas about how European governments might defuse the running crisis on the Continent."
Modern capitalism may not be sustainable, writes Kenneth Rogoff: "Even the leading capitalist economies have failed to price public goods such as clean air and water effectively...Second, along with great wealth, capitalism has produced extraordinary levels of inequality...Only a few countries - Sweden, for example - have been able to curtail this vicious circle without causing growth to collapse. A third problem is the provision and distribution of medical care, a market that fails to satisfy several of the basic requirements necessary for the price mechanism to produce economic efficiency, beginning with the difficulty that consumers have in assessing the quality of their treatment...Fourth, today’s capitalist systems vastly undervalue the welfare of unborn generations...Financial crises are of course a fifth problem, perhaps the one that has provoked the most soul-searching of late."
Stupid pet tricks interlude: A puppy that sneezes on command.
Republicans want to fund a "doc fix" by cutting health reform, reports Sahil Kapur: "House Republican Policy Committee Chairman Tom Price (GA) told Inside Health Policy that the GOP is looking to pay for a Medicare physician payment patch by cutting funds from the health reform law's Center for Medicare and Medicaid Innovation and exchange subsidies program -- and lawmakers are seeking a budget score on both, along with other possible payment offsets. 'We're pushing for various pay-fors,' Price told IHP Friday (Dec. 2) morning...A Democratic congressional aide questioned the logic of cutting CMMI, which is projected to save money. 'It doesn't seem logical that you'd cut something that's aimed at slowing the growth of spending in the health care system solely for political purposes,' the aide said."
A health testing case is heading to the Supreme Court, reports Brent Kendall: "The growing medical-testing industry goes before the Supreme Court this week in a patent case that pits the Mayo Clinic against a company trying to protect its diagnostic tests. Companies are patenting more tests that help doctors set drug dosages or determine whether a person can benefit from a particular treatment. Screening tests that identify people's risk factors for disease also are getting patented more frequently. Leading medical groups argue that many of the new patents run afoul of prohibitions on patenting abstract ideas or laws of nature. The groups say no one should enjoy exclusive rights to tests that observe the human body's natural response to illness or treatments...But biotechnology and pharmaceutical companies say patents on diagnostic tests have spurred advances in personalized medicine."
HHS has finalized medical loss ratio rules, reports Sam Baker: "Insurance plans will soon have to give consumers more information about how their premium dollars are spent, even if the spending meets new federal requirements. The disclosure requirements were included in final regulations on the healthcare reform law’s medical loss ratio (MLR) provision. The Health and Human Services Department finalized its MLR rules Friday. The healthcare law requires insurers to meet an 80 or 85 percent MLR, meaning they must spend 80 or 85 percent of customers’ premiums on medical costs. Only the remaining 15 or 20 percent can go toward profit and administrative expenses. Plans that miss the mark will have to send rebates to their customers. Under the final rule, plans must send their customers a notice about the MLR even if they meet the requirements and don’t have to offer rebates."
Home health care is getting better and more necessary, writes Jack Resnick: "Patients who are treated at home by a doctor and nursing staff who know them intimately and can be available 24/7 are happier and healthier. This kind of care decreases the infections, mistakes and delirium, which, especially among the elderly, are the attendants of hospital care. And it is far more efficient. According to a 2002 study, for the patients treated by the Veterans Affairs’ Home Based Primary Care program, the number of days spent in hospitals and nursing homes was cut by 62 percent and 88 percent, respectively, and total health care costs dropped 24 percent...We have the technology. Electronic medical records can give a doctor with an iPad as much information as any institution. With hand-held machines and a few drops of blood, doctors can get test results in seconds at a patient’s bedside."
We need both Medicare and private health care, writes Austin Frakt: "Traditional Medicare and private health plans both innovate but in different ways. For example, traditional Medicare has brought us prospective payment for hospitals, physicians, and post-acute care providers. It has introduced bundling via diagnosis related groups. In the coming years it will run ACO pilot programs and other types of bundled payment initiatives, among other payment reforms. Few, if any, private plans have implemented any similar reforms before Medicare has or will, but many have followed or may follow Medicare’s lead. On the other hand, private plans have innovated in ways that traditional Medicare has not. Manged care, consumer-directed health plans, prescription drug benefits, and catastrophic coverage all exist or existed in the commercial market before adoption by Medicare (if ever)."
The White House is eager to avoid another shutdown fight, reports David Rogers: "After months of feeling bullied by Republicans, the White House hit back Friday on year-end spending bills, warning that the GOP risks another embarrassing government shutdown crisis if it doesn’t come to terms with a package that President Barack Obama can sign...Lew’s comments, going into a long weekend of negotiations, appeared targeted most at conservatives who have sought to use the massive appropriations bill as a vehicle to advance legislative riders impacting administration policy. Such provisions are a perennial source of tension between any Congress and the White House, but literally scores have been proposed now by House Republicans--in many cases without public debate."
Contractors are panicking about triggered cuts, report Nishad Majmudar and Danielle Ivory: "Across-the-board budget cuts triggered by the failure of Congress’s deficit-reduction supercommittee might discourage acquisitions of companies that depend on federal contracts. The cuts, on top of previous measures, would reduce the Defense Department budget by about $1 trillion over 10 years. That might diminish the value of potential acquisition targets working on big-ticket Pentagon programs, said John Hagan, head of the defense and government services group at BB&T Capital Markets in Reston. Those involved in intelligence, cybersecurity or health care might be insulated from cuts and hold their value, he said...The federal government contracts for more than $500 billion a year. Lockheed Martin had the most civilian government contracts in the fiscal year that ended Sept. 30, at $6.19 billion."
Alabama's anti-immigration law is threatening the state's growth, report Arian Campos-Flores and Timothy Martin: "This state has prided itself on its ability to attract international companies like Daimler-Benz AG, Toyota Motor Corp. and ThyssenKrupp AG. But negative publicity stemming from Alabama's new anti-illegal immigrant law threatens to complicate the state's efforts to continue luring foreign investment, some business leaders say. Those concerns have intensified with the recent detentions of two foreign auto workers under the law. On Monday, a Japanese employee of Honda Motor Co., Ichiro Yada, was cited for failing to produce a government-issued driver's license--a violation of the new law--and detained for approximately 45 minutes at a routine license checkpoint set up by police in Leeds...Two weeks earlier, a Mercedes-Benz executive was arrested in Tuscaloosa County."
Adorable children in a short film interlude: "School Portrait".
The EPA is easing its boiler emissions rule, reports Tennille Tracy: "The Obama administration revised one of its most hotly contested environmental rules and proposed a more-lenient measure to reduce toxic emissions from certain industrial facilities. The new proposal won cautious praise from several industry groups, though one said it was still too burdensome. It was the latest example of the fine line President Barack Obama has walked on environmental policy, where he is often attacked by Republicans on the campaign trail. The administration has become sensitive to costly rules that could damp economic growth...The latest step involves boilers, used by refiners, chemical plants and other industrial facilities to generate heat or electricity. The EPA says the revisions will achieve the same health benefits as an earlier rule issued in February."
Obama and Bill Clinton are collaborating on an efficiency initiative, reports Jackie Calmes: " President Obama joined former President Bill Clinton on Friday to announce $4 billion in government and private-sector commitments to finance building renovations to make properties energy efficient and to create tens of thousands of jobs in the process. The two emphasized that no taxpayer money or government risk was involved as they appeared together at a commercial building near the White House, where retrofitting has provided more than 250 jobs and is expected to save the property owner $200,000 a year in utility bills. Instead, special contracts with investors allow upfront costs to be repaid with long-term energy savings...Mr. Obama, who spoke with two workers in hard hats behind him, announced that he had directed all federal agencies to make at least $2 billion worth of energy-efficiency upgrades in the next two years."
The Chinese are interested in a binding climate pact, reports Juliet Eilperin: "Chinese climate negotiators raised the prospect of negotiating a legally binding climate pact at U.N. talks this weekend in South Africa, but the requirements they laid out for reaching that goal might make such a deal hard to reach. In separate remarks to reporters and non-governmental groups, two of China’s top climate officials suggested they might participate in talks aimed at forging a new, enforceable global warming agreement by 2020. That issue, along with the question of whether industrialized countries will agree to a new set of emissions reductions under an existing 1997 climate treaty, are key stumbling blocks in the ongoing climate talks in the coastal city of Durban."
Carbon emissions have shot up sharply, reports Justin Gillis: "Global emissions of carbon dioxide from fossil-fuel burning jumped by the largest amount on record last year, upending the notion that the brief decline during the recession might persist through the recovery. Emissions rose 5.9 percent in 2010, according to an analysis released Sunday by the Global Carbon Project, an international collaboration of scientists tracking the numbers. Scientists with the group said the increase, a half-billion extra tons of carbon pumped into the air, was almost certainly the largest absolute jump in any year since the Industrial Revolution, and the largest percentage increase since 2003. The increase solidified a trend of ever-rising emissions that scientists fear will make it difficult, if not impossible, to forestall severe climate change in coming decades."
Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.