Different Approaches to the Financial Mess

The Wall Street Journal discusses different approaches to the global financial crisis:

 

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In Berlin Thursday, with German Chancellor Angela Merkel at his side, French President Nicolas Sarkozy explicitly rejected Mr. Obama’s push for more global fiscal stimulus, declaring, “the problem is not about spending more, but putting in place a system of regulation so that the economic and financial catastrophe that the world is seeing does not reproduce itself.”

The divisions underscore that even when presidents change, some national interests don’t. For continental Europe, focusing on underregulation helps deflect blame for the crisis to the more lightly governed financial markets of the U.S. and U.K. The American push for more stimulus, in turn, shifts the blame to Europe for being too slow to respond to the ongoing economic slump.

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As stated many times before, I’m not qualified to analyze financial strategies but this seems pretty straight-forward. The French and German models are the more ‘conservative’ and patient approaches, while the US and British strategies are the more ‘liberal’ and aggressive plans. It is going to be interesting to see how these play out.

German Chancellor Merkel points out one reason why European nations are reluctant to increase spending (i.e. more borrowing):

 

 

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It is not, she pointed out, simply a philosophical difference. Borrow and spend today, repay down the road, is a particularly difficult proposition for a country with a shrinking population, she said.

“Over the next decade we will undergo a massive demographic change, and, therefore, borrowing is a greater burden for the future than in a country with a much more continuously growing population, as in the United States of America,” Mrs. Merkel said.

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What’s also key to remember is that the President also favors strong regulation, perhaps even   than his European counterparts. The difference seems to be a choice of a new battery of regulations (European model) or vesting the government with new powers to oversee business (US model). I cannot help but wonder if a few years from now we will interpret the President’s vision as a power-grab in much the same way liberals now interpret President Bush’s increased powers in the wake of 9/11.