By Mark Weisbrot
The U.S. and European Union together make up about half of the global economy, and recovery is quite uncertain in both of these big economies. Contrary to a lot of folk wisdom and political posturing, the problem is not irresponsible government spending in either case, but a lack of commitment by the authorities in both areas to ensure a robust economic recovery from the world’s deepest recession since the Great Depression. This is true in many other countries as well.
The continued weakness of the U.S. economy was hammered home last week with the monthly employment report for May. The creation of only 20,000 non-Census jobs in May, down from 217,000 the previous month, sent shock waves through the financial markets.
The Eurozone’s problems are seen as driven by a financial crisis, and this is partly true, in the sense that financial markets have adopted a skeptical attitude towards the sovereign debt of Greece, Spain and some of the other weaker European economies.
But the Eurozone’s financial problems can also be resolved with a robust economic recovery. Spain’s economic problems, like those of the United States, were caused by the collapse of a huge real estate bubble. Its public debt, currently at a relatively low 60 percent of GDP, will be quite manageable when its economy is growing at a reasonable pace. In fact, it could be quite manageable right now, if only the European authorities would agree to finance its borrowing costs at a low (or even zero) interest rate until the economy is growing again. Spain has about $68 billion to borrow for the rest of the year; the cost to the Eurozone authorities of financing this at zero interest rates would be minimal.