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.
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 ...