EoW March 2009

EuroWire – March 2009

Transat lant ic

Cable

Will the industrial nations of Europe and

Asia get behind the Obama stimulus

programme?

“The United States led the global economy into its worst

recession in at least a quarter-century.”

Rich Miller, of Bloomberg News, was only giving expression to a

widely acknowledged fact. After noting that the rest of the world

is looking to Barack Obama to lead the way out, the Washington

bureau correspondent asserted another incontestable fact:

“The trouble is, even the new commander-in-chief of the biggest

economy can’t do it alone.” (“US Will Need Help Getting Economy

on Track,” 25

January)

Mr Miller gathered a number of experts in support of his belief

that President Obama needs policymakers in other countries to

pull their weight. So far, at least, he sees a mixed response. While

some Asian nations, notably China, have announced big stimulus

packages, Europe has been “more reticent.” Some European

countries, including Germany, are coming around, slowly.

How essential is it that they pick up the pace – and soon?

Mr Obama’s plan (which some economists claim does not go far

enough) has as its centrepiece a roughly $850-billion package

of tax cuts and increased spending equivalent to about 3% of

gross domestic product (GDP) over the two-year term of the

programme. Although he denies having any illusion that things

can be turned around soon, this represents what the president

thinks is necessary to counter the economic crisis that has

prompted comparisons to the Great Depression.

“There are no quick or easy fixes to this crisis, which has been

many years in the making,” Mr Obama said in December. “But

now is the time to respond with urgent resolve to put people

back to work and get our economy moving again.”

❈

For their part, China, India, and other Asian nations

have announced fiscal packages totalling more than $672 billion

to stimulate their economies. China in November announced

a $585-billion programme equivalent to about 7% of GDP

over two years. Those hoping for a reciprocal effect, Mr Obama

among them, will have reason to be grateful that their Asian

counterparts in the rescue effort have the seed money on hand.

“Asia’s been pretty prudent in how it’s managed fiscal policy,”

Robert Subbaraman, chief economist at Nomura International

Ltd in Hong Kong, told Bloomberg News. “It’s had high growth

for a number of years and hasn’t squandered that money.”

In comparison, Europe’s embrace of stimulus seems tentative.

One of Mr Miller’s respondents is Laurence Boone, chief French

economist at Barclays Capital, in Paris, who calculates that

The economy