What is the real driver of the crisis in Europe and how does it relate to the United States? The tea party and the Republican Party have been using the debt crisis in Europe as an example of failed priorities. They say Europe is spending too much, specifically on their social programs and this gives them reason to cut ,cut ,cut here in the United States programs such as WIC, Welfare, and food stamps. But it turns out that the PIIGS, (Portugal,Italy, Ireland, Greece and Spain) have a huge deficit that is gaining more attention, and that deficit is trade. In Portugal, the trade deficit in July of 2010 was 2.4 billion EURO. The rest of the countries feeling the heat to make social program cuts are in the same situation. Even the united States is seeing the impact of some bad trade agreements.
The difference with the European debt crisis is the inability for sovereign countries to make monetary decisions on their own. Portugal and the rest of the countries rely on the EURO central bank. Individual countries in the EURO zone cannot devalue their currency to increase exports and lift them out of debt. Devaluing currency makes it cheaper to export goods and reduce the trade deficit.
So the people within the Euro Zone must take huge cuts in pay, something completely disagreed with, in order to increase their exports and make production cheaper. Comparatively, in the United States we have a huge trade deficit and if the ten thousand factories that fled to low wage countries were still in this country the tax base would be larger, more people would be working and our fiscal deficit would evaporate Instead those U.S. Corporations that fled to Mexico, China, Vietnam and India are only aiding those countries in climbing out of poverty.
Simon Johnson, author of 13 Bankers, does an incredible job explaining the mid 90s bailout of Mexico and the devaluation of the Peso which helped them increase trade and create a trade surplus. The bailout, which for the most part was given by the United States, was paid off in a year.
How many of our cities and towns are currently under financial distress because their industrial base left, leaving vacant properties plaguing their communities? How many million of dollars in property taxes could be used to support the firemen,policemen and teachers if our trade policies protected the American worker and our communities?
Now we all know the conservative answer is to cut taxes. But are we going to be able to cut taxes low enough to compete with with one hundred dollar a month wages? No, of course not, but that is the pipe dream of the right wing. It’s a lie they have pushed onto the American people to benefit their campaign supporters.
So the Euro debt crisis is not a failure of government spending, and neither is America’s debt problem a spending problem. It is primarily a trade problem that has caused this crisis. It has only benefited the outsourcing corporation, their CEOs who have a bulk of their pay locked into the stock of the company and a handful of very wealthy, multinational investors.
Let’s fix our trade imbalance, right the ship and move forward. Stop cutting services that help the very people who were harmed by the outsourcing and let’s focus on the main problem, free trade.