EoW March 2009

Transat lant ic Cable

The economy

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

35

EuroWire – March 2009