Obama and Europe's Meltdown

Back in the 1960s, the U.S. peace movement came up with a catchy phrase: "What if the schools got all the money they needed and the Navy had to hold a bake sale to buy an aircraft carrier?" Well, the Italian Navy has a line of clothing, and is taking a cut from a soft drink called "Forza Blu" in order to make up for budget cuts. It plans to market energy snacks and mineral water.

Things are a little rocky in Europe these days.

Unemployment is over 25 percent in Greece, Spain and Portugal -- and far higher among young people in those countries -- and most economies are dead in the water, if not shrinking. Relentless austerity policies have shredded Europe's traditional social compact with its citizens, fueled a wave of debt-related suicides in the continent's hard-hit south -- Greek suicide rates jumped 37 percent from 2009 to 2011 -- and locked much of the continent into a seemingly endless spiral: austerity means layoffs, fewer jobs equal less revenue, lower revenues leads to more austerity=the classic debt trap.

"The economic situation in Europe is moving from bad to catastrophic," says Douglas McWilliams, chief executive for the Centre for Economic and Business Research. "There is a danger that economic problems will spill over into social breakdown."

So why hasn't the U.S. Treasury pressured lending agencies, like the International Monetary Fund (IMF) and the World Bank to shift from austerity formulas to stimulation policies? Why is the Obama administration pressing Europeans to increase military spending? And what should it matter to Washington if Britain remains in the European Union (EU)?

It is not just that Europe is in crisis; it is that, as one Portuguese pensioner told Reuters, "We see no light at the end of the tunnel, just more pain and difficulties." In November the European Commission reported that unemployment on the continent -- now in excess of 25 million people -- would continue to rise. "The economic outlook is bleak and has worsened in recent months and is not expected to improve in 2013," the Commission found. "The EU is currently the only major region in the world where unemployment is still rising."

A UN report predicts that Europe will not recover the jobs lost in the 2008 financial crisis until at least 2017. One EU study found that the crisis threatens to turn the 94 million Europeans between ages 15 and 29 into a "lost generation."

All this translates into a level of economic misery that Europeans have not seen in more than 80 years. Indeed, Standard & Poor's says Greece's meltdown is worse in "duration and scale" than Germany's was during the 1930s. The aid agency Oxfam reports that if the Madrid government's current austerity policies continue, the percentage of people below the poverty line in Spain could rise from 27 percent to 40 percent. United Kingdom Chancellor George Osborne says he expects his country's austerity program to continue until 2018.

The pain is so intense that it has helped fuel credible regional succession movements in Spain, Belgium, and Scotland.

But the push for yet greater austerity has less to do with a deep concern by Europe's elites over debt -- it is high but manageable -- than as part of a stealth campaign aimed at dismantling rules and regulations that protect worker rights, unions, and the environment.

"We are seeing some worrying signs of anti-business rhetoric among some of Europe's leaders and believe that this is not a productive and collaborate approach to take," DuPont's head man for Europe, the Middle East and Africa told the Financial Times. "Business and government need to collaborate to face the challenges of the future."

The "anti-business rhetoric" comes mainly from workers--and increasingly members of the middle class--desperate to hold on to jobs and a living wage. Ford, General Motors, Hewlett Packard, Citibank and Japan's Nomura Bank have cut jobs, increasingly moving their operations to "developing countries," that is, those with weak unions and/or authoritarian governments. While U.S. executives increased their investments in Europe by only 3 percent, they have amped up those in the "developing world" by 25 percent.

In short, corporations are saying to Europeans, give up your working conditions, wages, and benefits, or we export your jobs.

Workers have not taken this employer offensive lying down. There have been strikes and walkouts from Spain to the  Czech Republic, and austerity adherents have suffered ballot box reversals. Chancellor Angela Merkel -- the queen of harsh economic policies -- took a beating in the last round of German state elections.

The Obama administration could help halt Europe's plunge from first world to second world status, but is has been largely silent on the austerity/debt formula. For instance, last summer an IMF study indicated that endless austerity would not only tank economies across the continent, but also increase the debt problem. However, that study has yet to be translated into policy, even though the fund's current managing director, Christine Legarde, was the White House's candidate for the post.

Much the same could be said for the World Bank. The U.S. nominated its current American president, Jim Yong Kim of Dartmouth College. Rather than stepping back from austerity programs, however, he recently warned developing nations not to use economic stimulus to improve their economies, because it would raise "indebtedness and inflation."

So, while the U.S. Treasury Department has issued a few mild dissents about the efficacy of austerity programs, the two major economic organizations that the U.S. dominates have held the course -- straight for the iceberg.