The OECD (the Organization for Economic Cooperation and Development, the Paris-based think tank for the 31 richest countries) released its twice-a-year economic outlook yesterday. It presented a bleak fiscal picture for many of the member countries (including the United States) unless governments make policy changes, but, constructively, it also presented possible ways forward for countries to get their fiscal house in order.
Throughout the week, U.S. financial markets continued to be dominated by a global market “flight to quality” in response to perceived EU policy weakness in addressing the Greek and eurozone fiscal crisis.
With a new government in place, the UK is moving fast to trim their budget deficit. Treasury head George Osborne is expected to announce £6 billion in spending cuts (about $9 billion) next week to cut into their £163 billion deficit ($235 billion, 12.6% of GDP). It seems that the financial market turmoil in Greece has spooked the government into taking action immediately, rather than waiting for the economy to be in full swing.
U.S. markets continued to be dominated this week by the continuing roller coaster ride from the Greek (and eurozone) debt crisis. More positive U.S. economic news appeared to be less important. The cause of last week’s stunning drop and subsequent recovery in the U.S. stock market is still not well-understood.
Inspiration can come from the most surprising places.
Take Portugal, for instance. (Granted, there are major differences between the U.S. and Portuguese economic and fiscal situations.)
Yet, the crisis fiscal package announced today by Portugal’s Prime Minister may suggest a way forward to U.S. political leaders, so far unwilling to make the tough choices needed for our fiscal future and under pressure from citizens who do not appear to appreciate the gravity of our situation.
In a release late Sunday night, the Fed announced that it has agreed with other major central banks to reopen foreign currency swap lines in order to provide them with dollar liquidity through January 2011.
From Sophisticated to Sophocles – The untangling of the complex web of financial manipulation and deceit arising from the “hidden debts” controversy in Greece has exposed the mythology of its finances and is now playing out like something written by the ancient playwright, Sophocles. As the Greek economy becomes the latest tragic tale to emerge from that country, many are wondering if the woe will spread elsewhere and what lessons the U.S. can learn from the drama.
The EU and IMF just recently agreed to provide a nearly $1 trillion rescue fund for European countries facing troubled fiscal waters. Meetings over the weekend between European finance ministers lasted until early today, after which the EU announced it would provide $560 billion in new loans and an additional $76 billion to existing lending programs to struggling countries.
Here are the highlights from this weekend’s editorials on fiscal and budget policy:
It wasn’t enough that we had a lot of impressive economic news this week (including today’s solidly positive employment numbers – even though structural unemployment remains a huge problem). It appears that the recovery is finally on track, although perhaps subpar compared to other recoveries. Moreover, structural unemployment will remain a tough nut to crack for awhile.
But US markets did not on balance reflect the good economic news.