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ABOUT THE QUICK TAKE Every Friday, the Quick Take columnists will offer their views on an issue of significance to American University. Notable members of the campus community will also be invited to contribute to this new feature. Suggestions for topics and other ideas from readers are welcome and encouraged, so please submit comments to edpage@theeagleonline.com. |
The financial crisis in Europe seems only to be getting worse. As the situation has decayed in the past months, governments in both Greece and Italy have been replaced. And despite the recent austerity measure that was agreed to by European leaders and is now gradually making its way through the Greek Parliament, nothing seems to stem a continental feeling of dread. For those who pay attention, the European future looks dire. But should the average college student care (SIS majors aside, of course)? Can a financial crisis across an ocean really affect the United States, specifically its job market? Should AU students expecting to graduate this year be concerned? Our Quick Take columnists weigh in:
Rachel Lomot
I need a dollar, and so does Greece
Joe Gruenbaum
I need a dollar, and so does Greece
By Rachel Lomot
Financial aid: those two words are the bane of the typical AU student’s existence. In fact, last night I spent hours on the AU CareerWeb sending emails to various employers while complaining with my friends about how we are broke – and it’s only freshman year. It seems that most freshmen are working at least one, sometimes two jobs on top of school work. I came to AU wanting to explore D.C and focus on extra-curriculars, but I keep finding my mind drawn to money and its consistent absence.
The crisis in Europe is not aiding our cry for help either. Money is a worry across nations. It seems almost daily that the “New York Times” has a headline about the struggling economy in Greece, Italy, Portugal, Spain and Europe was a whole.
The idea of an entire country failing seems absurd, but could European failures prove harmful to America as well? The world is getting smaller daily and the repercussions of this could come to haunt us. Our already fragile economy may not be able to handle a $4 trillion dollar partnership go down the drain. The European Trade Commission reminds us that the “EU and the US economies account together for about half the entire world GDP and for nearly a third of world trade flows.”
As a student it is easy to forget about the financial distress 5,200 miles away. We have papers to write, tests to take, and jobs to find. We have our own worries. Yet, we cannot ignore that the world’s economy is increasing interdependent, and thus the consequences of Italian and Greek financial problems will no longer be limited to Eastern Europe.
If the partnership between America and the EU is hindered in any way it puts one gigantic chunk of money in jeopardy. It is safe to say that anything that happens in Europe will, in some way, affect our bank accounts. Europe’s problems of today could very much well be America’s problems of tomorrow, which is why when we leave the comfort of AU campus we need to be aware of this issue. With ignorance, the overwhelming debt and lack of job opportunities may be the sole conversation among peers not just here or in Europe, but all over the world.
Rachel Lomot is a Freshman in SIS and SOC and a Quick Take columnist for The Eagle.
It's the growth, stupid
By Joe Gruenbaum
With Italy perched on the edge of a cliff, Portugal struggling to tread water and Greece hiring Harvard economics professors to run their country, all the EU talk has been about austerity. But as bad as the debt situation for Spain, Ireland, Greece and others is, there is a more perilous problem cropping up as governments take machetes to public expenditure—a lack of growth.
Let’s start with some simple econ. Yes, budget deficits should not be more than 3 to 4 percent of GDP. The exorbitant spending and lackluster taxation of European countries has put many of them above that threshold; Spain, according to its own projections, will end up above 7.5 percent of GDP this year. But as the leaders of those governments slash away, they are forgetting that there is another variable, one they take action to augment: the size of GDP.
Growth isn’t a panacea for debt by any means. But it is the first problem a country should address. Why? Because it’s easier to reform other areas—banking, social programs, etc—when your country is doing well. Cutting spending first only reduces growth, which in turn makes an economy’s outlook worse. And as the economy suffers, investors are even less likely to want to provide businesses with capital if there is no demand for goods and services. We’ve seen this happening already; as Europe’s leaders slash away, Europe’s growth has stalled. New estimates from the European Commission predict 1.5 percent growth this year, and 0.5 percent in 2012.
And that’s just the fiscal side. On the monetary front, the European Central Bank has been reticent to take the kind of sweeping action required in Italy and Portugal to ensure they don’t collapse. And the resulting lack of confidence in Italy and others has limited growth for the rest of the EU. On Tuesday, the ECB slowed its buying of Italian bonds, and the whole EU saw a sell-off—German and French yields shot up, but more shockingly Finnish and Austrian bonds caught Italy’s disease. Finland and Austria had largely been above the fray before the past week. Capital Market Research firm Daiwa noted, “While France has for weeks been under some market pressure, with fears over the country’s AAA-rating to the fore, the likes of the Netherlands and Finland had proved immune. That no longer appears to be the case.”
EU leaders have neither solidified confidence nor pursued responsible policies to increase demand, the most important aspect of growing short term GDP. And this irresponsibility will have ramifications for the United States. It will shock credit markets, making our debt more expensive. According to Yale professor Nuno Monteiro, more than 14 million US jobs depend on eurozone demand; therefore the US labor market will not be immune.
A lack of action from the ECB and austerity without demand-side policies will spell disaster for both the EU and the rest of the world. But until they realize that growth is the problem, Europe will continue in its death spiral.
Joe Gruenbaum is a Freshman in SIS and a Quick Take columnist for The Eagle.
