I've been quite skeptical of the repeated claims in recent months that we're in the final days, or final weeks, of the European crisis (need a primer on how we got here? See Wonkblog's feature explaining the Eurocrisis in eight graphs). But at this point, I think we're clearly in the endgame. The problem, however, is that the endgame could take some time.
In the last two days, both Angela Merkel, the prime minister of Germany, and Mario Draghi, the head of the European Central Bank, have made the deal pretty much explicit: if the Eurozone becomes a fiscal union, where member countries can be punished for exerting insufficient fiscal discipline, then Germany will agree to the issuance of Eurobonds and central bank will buy government debt and end the runs. But this can't be just any fiscal union. This fiscal union needs to be tough. It needs to be enforceable before the European Court of Justice. If Germany has its way, the sanctions would even be automatic.
Those speeches were a big deal. Draghi's in particular. “Draghi is saying, pretty explicitly, that the ECB and the Germans are demanding changes in the way the other Europeans behave, especially on fiscal policy and structural labor reforms,” Joe Gagnon, a senior fellow at the Peterson Institute for International Economics, told me. “If those countries deliver, then the ECB will have to rescue them. If you tell someone they have to do something and they do it, you have to reward them. Because if you don’t, why would they ever do what you say in the future?”
On Monday, Germany and France are expected to bring out their proposals for a treaty change that would create the fiscal union. But changing the treaty is no small matter. The 17 governments can't just agree. They need to pass the change through their various political systems. In Ireland, for instance, that means a public referenda. A public referenda, let's be clear, on handing a big chunk of national sovereignty over to Eurozone bureaucrats. One option is to buy off the Irish voters by dangling fast help if they can get this passed. But then that would need to be done for everyone. And where is that help going to come from? and how will that make voters in the help-giving nations feel about passing these treaty changes?
Merkel warned that this won't be quick and it won't be easy. “Resolving the sovereign debt crisis is a process, and this process will take years," she said. As if to drive the point home, she went on to compare it to a marathon. But let's be clear: that's a choice Merkel is making. Resolving the immediate crisis could be quick. Merkel, however, believes that if she acts to end the crisis, she loses her leverage to force a fiscal union. So she's withholding the cure from a very, very sick patient here. And though it's true that the patient needs to commit to a healthier life, he first needs to survive this disease.
1) The European Central Bank might step in if the Eurozone moves towrds a fiscal union, reports Anthony Faiola: "The head of the European Central Bank signaled Thursday that the institution might be willing to take more-aggressive steps to stem the region’s debt crisis, but only if the 17 nations that share the euro unite behind a plan that could tame years of runaway spending. While falling well short of a pledge to attack Europe’s debt turbulence with the same vigor the Federal Reserve used against the U.S. financial crisis three years ago, the statements Thursday open the door to a potentially critical shift in policy that could provide a long-elusive fix to the region’s fiscal woes. To date, the ECB has held back from using more financial firepower to fight the debt crisis, fearing that doing too much would rob the incentive from indebted countries such as Greece and Italy to change their profligate ways and force through deep economic policy changes."
2) So will Germany, reports Quentin Peel: "Angela Merkel, the German chancellor, has spelt out her determination to create a legally-enforceable 'fiscal union' for the eurozone, rejecting 'quick fixes' such as the immediate introduction of Eurobonds to deal with the debt crisis in Europe. France and Germany will to seek finalise their proposals for treaty change in the European Union on Monday, she told the German parliament on Friday, insisting that only fundamental reforms to reinforce budget discipline and curb government borrowing would deal with the causes of the crisis. The 17-nation eurozone was facing not just a debt crisis, but a crisis of confidence, she said in a formal government declaration. 'Resolving the sovereign debt crisis is a process, and this process will take years.'"
You didn't miss our Eurocrisis in eight graphs feature, did you? http://wapo.st/rIcaQG
3) Both parties' payroll tax cut plans fell short in the Senate, report Lori Montgomery and Felicia Sonmez: "The Senate late Thursday rejected competing partisan visions for extending a temporary tax break that benefits virtually every American worker, clearing the way for more serious negotiations over how to cover the cost of the tax cut. All but a handful of Democrats voted in favor of their party’s proposal, but in a surprising turn, more Republicans voted against the GOP plan than in favor of it. Senate Minority Leader Mitch McConnell (R-Ky.) predicted this week that a majority of his conference would vote for the party’s plan to extend the payroll tax cut. The vote suggests that rank-and-file Republicans remain divided on the merits of keeping the tax cut, leaving their party vulnerable to criticism from Democrats that they would raise taxes on the middle class as Americans are struggling economically."
Remember that the two parties are pushing different payroll tax plans. The Democrats' proposal is about twice the size of the GOP proposal: http://wapo.st/sONL9g
4) The GOP is likely to back an unemployment benefits extension too, reports Jake Sherman: "Republican leadership is about to say yes to Democrats. Yes to unemployment benefits, yes to Obama’s payroll tax holiday and yes on passing an unwieldy pile of year-end spending bills...Many conservatives don’t believe long-term unemployment benefits encourage people to go back to work and nearly all of them think the current system is broken...Republicans could get a major victory as part of this fight. The House GOP is looking for systemic reforms to unemployment insurance as part of any extension. One option would shorten the length of the benefits from 99 weeks...In the House, there are active discussions in leadership -- and some in rank and file -- about how to pass the unemployment benefits, the tax relief and government spending bills all at once."
5) Newt Gingrich is proposing dramatic structural changes to government, reports David Fahrenthold: "This is America under President Gingrich: There are two Social Security systems -- one old, one new, running side by side. There are two tax systems and two versions of Medicare. Immigration decisions are handled by citizen councils spread across the country. And in the White House is a president who is eager to do battle with the judicial branch. He can fire federal judges with whom he disagrees, and some new laws are written so that they cannot be reviewed by the courts. These are all concepts of former House speaker Newt Gingrich (Ga.), the idea factory who is now a front-runner for the Republican presidential nomination. If implemented, they would add up to a government in the mold of Gingrich himself: ambitious, confrontational and complicated, with an expansive faith in the free market to solve society’s problems."
6) The US wants to help the IMF help Europe, reports Howard Schneider: "The U.S. government is considering ways to help the International Monetary Fund bolster Europe’s crisis-fighting efforts, hoping to shield American taxpayers from footing the bill while addressing the risk posed by Europe’s faltering economy...The ideas under discussion include direct loans to the agency from wealthy European countries or perhaps other cash-rich governments. Another measure, specifically suggested by U.S. officials, is an increase in the IMF’s special drawing rights, or SDRs, which act as a pool of credit that member countries can quickly tap at a low interest rate. Countries usually use SDRs to confront short-term cash flow problems or related difficulties."
Anyone else noticed how Keynesian the IMF has gotten lately? http://bit.ly/vvkrPB
1) The US could turn into Europe if the GOP keeps blocking action on the economy, writes Paul Krugman: "I hope, for our sake as well as theirs, that the Europeans will change course before it’s too late. But, to be honest, I don’t believe they will. In fact, what’s much more likely is that we will follow them down the path to ruin. For in America, as in Europe, the economy is being dragged down by troubled debtors -- in our case, mainly homeowners. And here, too, we desperately need expansionary fiscal and monetary policies to support the economy as these debtors struggle back to financial health. Yet, as in Europe, public discourse is dominated by deficit scolds and inflation obsessives. So the next time you hear someone claiming that if we don’t slash spending we’ll turn into Greece, your answer should be that if we do slash spending while the economy is still in a depression, we’ll turn into Europe. In fact, we’re well on our way."
2) Elena Kagan's role in health reform needs to be probed, writes Lamar Smith: "Justice Elena Kagan may have played a role in the development and defense of the president’s health-care law during her tenure as U.S. solicitor general. Despite claims from Obama administration officials that Kagan was not involved in the health-care discussions, e-mails released last month indicate that there may be more to the story. One e-mail shows then-Principal Deputy Solicitor General Neal Katyal telling a public-affairs staffer that Kagan was not involved in any of the discussions or consultations over the legislation. But in an e-mail dated two months earlier, Katyal forwarded to Kagan information about a meeting at the White House on the health-care law and wrote: 'I think you should go, no? I will regardless but feel this is litigation of singular importance.'"
3) The European debt crisis is best understood in terms of our debt-ceiling crisis, writes Ezra Klein: "Germany and the ECB won’t say that the euro zone enjoys their unconditional backstop unless the rest of the euro zone agrees to rules that the Germans and the ECB feel make that backstop sustainable. As in America’s debt-ceiling debate, they are risking an unthinkable financial -- and political -- crisis to fix what they see as fundamentally unsound economic policies. That’s a hard sell to the Southern Europeans. German rules work for the German economy, which has in fact been helped by being tethered to the euro...Southern Europe is tied to a more expensive currency than would otherwise be true, and so it’s harder for those countries to fuel their economies through exports and balance their books."
4) Germany's morally in the right, writes David Brooks: "Over the past few decades, several European nations, like Germany and the Netherlands, have played by the rules and practiced good governance. They have lived within their means, undertaken painful reforms, enhanced their competitiveness and reinforced good values. Now they are being brutally browbeaten for not wanting to bail out nations like Greece, Italy and Spain, which did not do these things, which instead borrowed huge amounts of money that they are choosing not to repay...Our sympathy should be with the German people...They are not imprisoned by some rigid ideology. They are not besotted with some semi-senile Weimar superstition about rampant inflation. They are defending the values, habits and social contract upon which the entire prosperity of the West is based."
5) Germany's position is right but irresponsible, writes Michael Gerson: "Merkel and most Germans are skeptical about assuming these responsibilities, and they have every right to be. They suspect that less responsible European governments want a 'liability union,' without fundamentally changing their spending habits. Germany does not want to be the fireman on a continent of economic pyromaniacs. In addition, German officials stress that the chartered purpose of the ECB is to assure price stability, not prop up national budgets. And they note that the founding documents of the European Union forbid member states from guaranteeing the debts of one another. All these objections make sense. But they add up to inertia during an economic emergency. It is possible to be right and still be irresponsible."
Icelandic pop interlude: Björk plays "Hunter" live.
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Still to come: Senate Dems want a vote on the consumer finance chief by Christmas; House Dems want to dial back Medicare cuts; unemployment benefits will expire soon; Gingrich and Romney don't differ much on energy; and a grocery-shopping dog.
Inflation fears are preventing more German action, reports Nicholas Kulish: "To German ears those bond purchases, or anything that smacks of printing money, sound like a recipe for skyrocketing prices. German leaders, including Chancellor Angela Merkel and her former economic adviser, Jens Weidmann, now head of the German Bundesbank, have strongly discouraged any such move by the European Central Bank, stalling the rescue of the euro zone in the view of critics. The prospect of a dim historical memory -- the antique photograph of the wheelbarrow full of nearly worthless bills -- helping to drive the world off the economic precipice and into another deep recession may seem like the height of irrationality and even irresponsibility."
Senate Democrats are planning a confirmation vote for Richard Cordray, report Victoria McGrane and Maya Jackson Randall: "Senate Democratic leaders, at the urging of the White House, plan to hold a vote before Christmas on the president's nominee to lead the new consumer-finance watchdog agency, according to Senate Democratic aides. It was unclear whether the White House genuinely believed it can win the vote despite Republican opposition, or if it expects a failed vote it could use to highlight GOP obstinacy as the election season heats up. President Barack Obama nominated former Ohio attorney general Richard Cordray to become the first director of the new Consumer Financial Protection Bureau. The nomination is subject to Senate confirmation, but chances appear slim that Mr. Cordray can win the 60 votes necessary to break a Republican filibuster."
Few workers have fully recovered from the recession, reports Motoko Rich: "According to the study, to be released Friday by the John J. Heldrich Center for Workforce Development at Rutgers, just 7 percent of those who lost jobs after the financial crisis have returned to or exceeded their previous financial position and maintained their lifestyles. The vast majority say they have diminished lifestyles, and about 15 percent say the reduction in their incomes has been drastic and will probably be permanent. Bill Loftis is one of the unfortunate ones. He is without a college degree or specialized skills and also worked in an industry, manufacturing, that has added back only about 13 percent of the jobs that it lost during the recession...According to the Rutgers study, those with less education were the most ravaged by job loss during the recession. Even among those who found work, many made much less than before the downturn."
Stupid pet tricks interlude: A Chinese grocery-shopping dog.
House Democrats want to dial back the Medicare trigger cuts, reports Pete Kasperowicz: "While some Republicans are taking heat for seeking to mitigate $600 billion in sequestration cuts to the Defense Department, a handful of House Democrats this week put forward their own proposal to spare Medicare from spending cuts triggered by the August debt deal. Rep. Edolphus Towns (D-N.Y.) introduced H.R. 3519, along with six other House Democrats, in a bid to exempt Medicare. Towns said Wednesday that hospitals would not be able to cope with reduced Medicare reimbursements required under the sequestration cuts required under the Budget Control Act...The law specifies that Medicare can be cut no more than 2 percent for a fiscal year, a cut of about $123 billion over a decade. However, Towns's bill would change that to say there can be no reduction at all for Medicare."
House GOPers think a HHS grant denial shows anti-Catholic bias, reports Felicia Sonmez: "House Republicans on Thursday sharply criticized a decision by the Department of Health and Human Services in September to deny a federal grant to a Catholic group that refuses to refer victims of human trafficking for abortion and contraceptive services, with some lawmakers saying that reflected an anti-Catholic bias in the Obama administration. Democrats on the House Committee on Oversight and Government Reform countered that the Republicans were trying to 'smear' the White House. HHS officials testified that they acted appropriately in awarding the $4.5 million in funding to three other nonprofit groups even though reviewers had scored those applications below that of the U.S. Conference of Catholic Bishops."
Unemployment benefits are set to expire soon, reports Michael Fletcher: "The looming expiration of federal unemployment insurance is reigniting a debate that could result in substantial changes to a program that serves as a lifeline to millions of jobless Americans...If lawmakers allow the unemployment program to expire on Dec. 31, an estimated 1.8 million people would lose benefits by the end of January. The magnitude of the problem will come in stark relief Friday when the Labor Department is expected to report that the unemployment situation changed little in November. With long-term unemployment continuing to weigh down the economy, experts say that insurance benefits can be a significant boost because recipients quickly spend the money on day-to-day needs."
The House voted to end public funding of presidential elections, reports Ben Pershing: "The House voted along party lines Thursday to abolish public funding for presidential campaigns and eliminate the Election Assistance Commission, the latest salvo in separate battles over deficit reduction and alleged voter suppression. The chamber approved Rep. Gregg Harper’s (R-Miss.) bill on a 235-190 vote, with no Democrats voting for it and just one Republican opposed. The measure seems unlikely to come up for a stand-alone vote soon in the Democratic-controlled Senate. The bill would end the Presidential Election Campaign Fund and the Presidential Primary Matching Payment Account and transfer the roughly $200 million contained in those funds to the U.S. Treasury to reduce the deficit."
The Senate is weighing a Congressional insider trading ban too, reports Kimberly Kindy: "Senators said at a hearing Thursday that Congress should quickly pass a bill that clearly prohibits its members and their staffs from trading stock based on nonpublic information they gather on Capitol Hill. In a two-hour hearing before the Homeland Security and Governmental Affairs Committee, members and witnesses said swift action was necessary because the public’s faith in Congress is at 'an all-time low.'...Two Senate bills and a House bill -- known as the Stop Trading on Congressional Knowledge Act -- would prohibit trades based on information that could come from private meetings, briefings and phone calls on the Hill. The bills also would dramatically change the financial disclosure process."
Boeing's union dispute is tentatively over, reports Michael Fletcher: "The union representing Boeing workers has agreed to a tentative deal that would effectively end the politically charged dispute between the giant airline manufacturer and the National Labor Relations Board. The agreement, reached Wednesday, would extend the union’s labor contract by four years. The deal offers wage and pension increases to workers, while guaranteeing a period of labor peace long sought by Boeing. The deal also includes a Boeing commitment to assemble the new 737 MAX in a union shop in Renton, Wash., guaranteeing the kind of job security sought by the union. If members ratify the agreement Dec. 7, the union said it would ask the NLRB to drop a federal complaint over the company’s decision to open a nonunion assembly plant in South Carolina."
Supercut interlude: Matt Zoller Seitz's "Feast", a tribute to food in film.
Gingrich and Romney don't differ much on energy, reports Darren Samuelsohn "The differences between Newt Gingrich and Mitt Romney on energy and environmental policy seem to be more about style than substance. Romney is widely seen as the more cautious of the two GOP presidential front-runners, someone more likely to start a White House term by proposing new economic and tax ideas and shying away from antagonistic battles with environmentalists and Democrats. Gingrich has more of a reputation as a risk taker, someone willing to tackle energy issues early on despite their status as some of the nation’s longest-standing and most perplexing challenges. Both candidates have spoken of implementing energy policies that embrace the GOP’s 'all of the above' mantra, favoring oil, natural gas, coal, nuclear power and renewable power. Cognizant of Iowa politics, both are ethanol boosters."
Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.