USA TODAY Column:
Q: Greece has been pushing back on all of the austerity measures that European leaders are putting in place. What’s your sense of what’s happening in Europe and how serious this is for the global economy?
A: The larger question is, is Europe in danger of becoming the new Japan — with a combination of weakness, sclerotic decision making, deflationary pressure, unaddressed debt burdens, leading to dismal economic performance with adverse consequences for itself and for the global economy. Mario Draghi (president of the European Central Bank) engaged in a necessary holding action. But it’s unlikely to be sufficient to bring about a new era of reasonable European growth. Layered on that is the challenge in Greece. My best guess continues to be that a way through will be found — because it is in the mutual interest of Greece and Europe to find a way through. But when negotiating positions harden and domestic constraints loom, the risk of accident goes way up. That is certainly a risk with respect to Greece.
Q: How important is all of this for the U.S?
A: This could have significant adverse consequences for the U.S. economy in three respects. First, a weaker European economy slows the global economy and demand for our exports. Second, a weakened European economy and more problems in European markets could increase risk aversion and drive liquidations with adverse consequences for U.S. markets. And third, trouble in Europe portends a stronger dollar, which reduces the competitiveness of U.S. exports more globally, reducing aggregate demand… (more)
