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Opinion

For US and Europe, governance by brinkmanship

The US and Europe are handling their fiscal crises with political brinkmanship, resulting in piecemeal solutions. The US seems to have adopted German Chancellor Angel Merkel’s much maligned step-by-step approach to problem-solving. Politically, that may be the only choice.

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If it makes it any easier, they can share the pain. And they can do so across the ideological divide since almost all major reform legislation in Europe and the US requires more than party-line votes. In essence, the crisis on both continents has to be addressed by what is called a grand coalition in the parliamentary system or cohabitation in the French presidential system. No surprise here: Large majorities are needed to change the basic social deal that society rests upon.

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The difficulty of reaching broad agreement explains why both Europe and the US are working in crisis mode, with even the sequence of reform looking astonishingly similar on both sides of the Atlantic.

Southern European governments have been heavily criticized in the US for stymying growth by increasing taxes on the front end of the reform effort while postponing to the tail end reforms that increase competitiveness. This critique made sense from an economic, but not necessarily from a political perspective.

Need proof? Just look at the United States: Taxes are going up while the infinitely harder work of cutting spending is still avoided. Fiscal responsibility along with a solid growth strategy is still a distant dream while the tax increases look quite European. It may just be the way our Western democracies work through such monumental challenges, step by step, cliff by cliff.

If so, we can hope that America mirrors Europe in one more way: It will eventually recognize the need for structural and competitiveness reform,  as Ireland, Portugal, and to some extent Spain, Italy, and Greece have done by year three of the crisis. America will set out to fix potholes, decaying bridges, and decrepit public transportation systems while reducing its debt over the long term; it will understand that it needs to improve its education system, especially vocational training, to support what could become an industrial renaissance; it will need to help its small- and medium-sized companies to become more competitive in the global marketplace.

To keep financial markets calm, the US will have to at least point out a timetable and plan for these steps.

So, is Europe ahead in the reform race? Yes, in some structural reforms, but not in other ways. America has its advantages over Europe: It has cleaned up its banking sector and its real estate market; it sits on a new growth engine called unconventional oil and gas; and it is, after all, a nation-state with the tools to act, at least theoretically.

Therefore, let’s be generous and call it a tie.

Thomas Kleine-Brockhoff is a senior transatlantic fellow at the German Marshall Fund of the US in Washington where he leads the EuroFuture Project.

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