Tuesday, March 10, 2009

Europe Finding New Reason to Dislike US: Philosophical Differences over How to Deal with Economic Challenges

As the Group of 20 (G-20) industrialized and emerging nations prepares for its summit in London in early April, it appears that much of Europe disapproves of the "stimulus package" approach to current economic challenges.

As you no doubt know, here in the U.S. we recently passed a stimulus bill totaling $787 billion. Other nations have followed this strategy, with Malaysia the latest to arrive at the stimulus party. Today they passed their own stimulus package, with a price tag of 60 billion ringgit ($16.2 billion), roughly nine percent of their GDP.

But the Europeans are unconvinced stimulus spending is the best strategy, and nowhere is this contrast of views more clear than between the United States and Germany. Germany and other European nations would prefer a more forward-looking approach, focused upon how we might best address future possible threats in the financial sector--the source of much of our current distress.

Fed Chair Ben Bernanke echoed the sentiments of the Europeans yesterday, calling for comprehensive reform of the ways that we conduct oversight of the financial sector, as opposed to a piecemeal approach that could potentially leave unaddressed the risks that courted current market woes. He went on to claim that without such reform, sustainable economic recovery may not be possible.

Now, exactly what a new system of regulation might--or should--look like is not at all clear. But given Bernanke's comments, there may be some common ground for G-20 conversations in London after all.

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