Is Europe about to 'go American'?

Asset reflation has allowed the US to slowly pull out from the recession, while spending cuts across Europe have crushed recovery, Brown says. Depending on the outcomes of elections in Germany, Europe may begin pursuing much looser monetary policies.

  • close
    Members of the Mortgage Victims' Platform protest against evictions in Barcelona, Spain, on July 2, 2013. Depending on the outcome of Germany's elections, Europe may 'go American' — reflating asset prices — in its attempt to pull out of a recession.
    View Caption
  • About video ads
    View Caption

America is gradually dragging itself out of crisis mode as Europe continues to suffer.

But maybe not for long.

The German elections are the final hurdle between the old Austerity ideas and the new policies of stimulus and forbearance. It is my belief that the European economic bosses are about to Go American in their ongoing battle with deflation and depression.

Recommended: Five signs Americans are forgetting recession's lessons

Here's the playbook for how that will work, via Liam Halligan at The Telegraph (emphasis mine):

Angela Merkel faces crucial federal elections on September 22. In the run-up to those, the German chancellor will do everything possible, in terms of easing bail-out conditions, to reduce the possibility of turmoil in European financial markets – which would shatter her reputation for economic competence.

The tough rhetoric will continue, of course, but technical concessions will be made to payment schedules and loan conditions, grasped by the bond traders while unnoticed by the broader public. Whisper it, but in the run-up to the German elections, Athens has Berlin over a barrel.

There is a widespread assumption on financial markets that Merkel will indeed secure re-election and, once that’s happened, European Central Bank boss Mario Draghi will get the “nod” to conduct much looser monetary policy in order to try to reflate asset prices.

That will mean dropping even the pretence that the eurozone’s central bank retains any of the inflation-fighting culture it was supposed to have inherited from the Bundesbank. But it won’t matter, of course, because by then Merkel will already be safe.

Asset reflation, while not a panacea, has certainly given us a better shot at recovery than the crushing spending cuts the Germans have mandated across southern Europe.

There are other critical differences between the US and Europe, of course, but this is still a key point.

The stabilization of home prices and return of both corporate and consumer confidence are allowing us to withstand the opening barrage of our own fiscal belt-tightening. In Greece, Spain and Italy, it is precisely backwards - credit is tighter, asset prices are still moribund and, as a result, there is not the confidence necessary for risks to be taken and jobs to be created.

I believe that, in the next act of the European play, this is about to change. And while we don't know whether or not this will "work", the more important question concerns how the markets will react should it even be attempted ...

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here.To add or view a comment on a guest blog, please go to the blogger's own site by clicking on

Share this story:
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.




Save for later


Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items


Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items


Failed to save

You have already saved this item.

View Saved Items