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By Jeff Harding
The recent G20 meeting in Toronto came out with a joint statement endorsing “balanced and sustainable” growth for its members. It was one of those statements that are created by committees to placate all participants and don’t really amount to anything. In this case, no meaningful agreements came out of the G20 meetings. Each government will just go back to doing what they have been doing and mouth high-sounding speeches of solidarity and fraternal love for their world co-leaders.
What really happened in Toronto didn’t come out in the official statements (they never do). But the obvious and deep division between the U.S. and Europe was the main story of the event and that was fascinating to watch.
When Obama chides Merkel for Europe’s (Germany’s) proposed attempts at fiscal responsibility and when Merkel hits Obama for the U.S.’s fiscal profligacy, then you’ve got a good story.
The big split has to do with whether the world should continue fiscal stimulus. The Obama Administration believes that it’s too soon to stop. Recent numbers have them scared about the future of the U.S. economy and it wouldn’t hurt to have some global support when they try to beggar Congress for more spending to promote economic recovery. (“See,” Geithner will say, “even the Germans are begging us to spend so we can rescue the world economy.”)
Europe has a worse problem. Well run countries like Germany (actually about the only relatively well run economy in the EU), are being dragged down by their weak eurozone members, the well known PIIGS, lead by chief pig, Greece. They are being dragged down because they are the only ones in the EU that have the wherewithal to bail out its banks who will be in jeopardy once Greece defaults on its bonds. France should be included in this as well since their banks are also big PIIGS lenders. It will cost them a lot of money because they won’t allow their banks to fail.