The economic meltdown, which dismantled much of the American financial system, spread to Europe via the intricate ties of multinational corporations across the Atlantic. The financial crisis in Europe is similar to that experienced in the United States – the overall economic crisis however is much different – but the way the two parties are dealing with their problems are very different.
The U.S. approach has been to spend first, spend second, and worry about questions and regulations only after the crisis has been addressed. France, Germany and many other European nations are taking on their financial challenge in a very different way. Each European nation has put together a funding program for their institutions that have been battered by stock losses and accounting writedowns, but the amount of money being handed out is not comparable to the U.S.
The United States has authorized well over $1 trillion in bailout and stimulus spending in less than one year, and there is always a looming possibility of more on the horizon. In Europe the choice has been to put together a modest stimulus – 10 to 20 times smaller than U.S. versions – and then put off other spending measures until all the facts are in.
The Obama administration has already signaled that it wants the focus of April's economic summit to be on tax and stimulus programs to jumpstart slowing economies. His European counterparts on the other hand, are not as willing as Obama is to start spending on deficits and accumulating debt obligations. France, Germany, Italy, even the UK – which often follows the U.S.' lead – are wary of straining their balance sheets much further with so much market uncertainty.This is an approach which the Obama team could be served to adopt, and one which would show that these individuals are indeed changing the old ways of the previous administration. We all know the $700 billion bailout was a hastily thrown together provision. We all know that most of the first outlays were used for purposes other than their intent and we all know that it did almost nothing to correct the slide in the American economy. Nonetheless the new administration continued those old policies without hesitation.
The European preference is to control the markets through regulation, the American preference is to let the markets fend for themselves by encouraging spending. This downturn, which began in the U.S., is a perfect example of American policy gone wrong. We were given a perfect opportunity to wipe the slate clean and didn't take it. With the upcoming G20 summit in London, we will be given another chance.