Monday, June 11, 2018

Exactly: EU Says US Policies on "Road to Hell"


Sometime ago, I lauded the first Czech PM Vaclav Havel's high opinion of Frank Zappa as encapsulated by then-US Secretary of State James Baker's clear annoyance when he said, "You can do business with the United States or you can do business with Frank Zappa." The obvious flaw in Baker's reasoning was that Zappa was very much your archetypal exponent of American capitalism. Now it seems current (endangered) Czech PM Mirek Topolanek is also a big music fan. (The Czech Republic is current EU rotating head.) In this case, I believe that he's cranking Aussie AC/DC. Like me, ol' Mirek has a similarly dim view of America's so far ineffective efforts to revive its moribund economy. Yes, he says, America is on the road to hell. Friedrich Hayek and Angus Young--what a combination.

He is hardly alone as several other countries are being hurt by these infantile policies. Obamanite protectionism [e.g., 1, 2, 3, 4] has been widely noted here in addition to ridiculous stimulus packages that do nothing other than destroy the dollar's value--a real concern among those who hold it as a reserve currency. Just yesterday, another Geithner slip from the line that the currency is fine and dandy caused the beleaguered greenback to sag in FX markets. What else can I say? I think that, if possible, the rest of the world would prefer not to be taken along for a doomed ride by America's junk policies. In the real world, however, we are nearing a time when others will have to work together to stop this abusive behavior. It's time to hold Washington's feet to the fire. From the Financial Times:
European Union hopes for a new era in relations with the US were thrown into chaos on Wednesday when the holder of the EU presidency condemned American remedies for the global recession as “the road to hell”.

Barely a week before Barack Obama is due to arrive in Europe on his first official visit as US president, Mirek Topolanek, the Czech Republic’s prime minister, put the 27-nation EU on a collision course with Washington...

“The US Treasury secretary talks about permanent action and we, at our spring council, were quite alarmed at that...The US is repeating mistakes from the 1930s, such as wide-ranging stimuluses, protectionist tendencies and appeals, the Buy American campaign, and so on,” he told a European parliament session in Strasbourg. “All these steps, their combination and their permanency, are the road to hell.”

US officials made no comment on the remarks. But the Obama administration says it took great pains to ensure that the Buy American provisions in the $787bn (€579bn) stimulus that the president signed into law last month were consistent with World Trade Organisation rules. It followed, therefore, that any attempt to make them permanent would continue to be consistent with WTO rules.

EU diplomats said it was the most extraordinary outburst from a political leader in charge of running the EU’s affairs since Silvio Berlusconi, Italy’s prime minister, caused uproar in 2003 when he likened a German socialist member of the European parliament to a Nazi concentration camp guard.

Other leaders of EU member states, including Angela Merkel, Germany’s chancellor, disagree with US calls for big fiscal stimuli to battle the recession. But they have couched their opposition in more diplomatic language than Mr Topolanek’s. The Czech leader was speaking eight days before Mr Obama was due to arrive in London for a G20 summit of the world’s developed and emerging economies.
The analogy to the 1930s is inapt, but the analysis is generally correct as you'd expect me to say. Moreover, why should a group of countries that follows sound money principles be punished for not going along with a heavily distorted view of stimulus manna from above? My view will never change in that observing sound money principles will pay off in the long run. Short-term pressure by exporters to engage in currency debasement to "increase competitiveness" comes at the expense of long-term costs in inflicting mountains of debt on future generations and making holders of your currency think twice. The US would like you to think this tradeoff doesn't exist, but it should know better.

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