This column for National Journal [link expires in a fortnight] looks at an international dimension of the economic emergency:
Even weeks ago, the orthodox and unorthodox measures that the Federal Reserve is now resorting to would have seemed scarcely thinkable. The same goes for the fiscal stimulus of $500 billion or more that the Obama administration is preparing. Whether these amazingly bold interventions succeed is another matter, but nobody can question the Fed's or Treasury's willingness to suspend the usual rules and think big.
This zeal for dramatic initiatives is notably absent in Europe.
The European Central Bank, which controls monetary policy in the 15 countries that are members of the euro currency zone, has cut interest rates more slowly and far more reluctantly than the Fed. Most European countries are planning a fiscal stimulus, but there is no meaningful Europe-wide initiative. The individual countries' efforts are collectively very modest compared with what is intended in the U.S. This week the head of the ECB reminded the zone's members of their commitments under the "stability and growth pact" -- an agreement they reached when the euro was created. It forbids members to run fiscal deficits anywhere near as large (in relation to the size of their economies) as the one the U.S. is now contemplating for 2009.
Why is there such a marked difference in attitudes to this economic emergency in the United States compared with Europe -- and what, if anything, does Europe's reticence mean for the U.S. and the world economy as a whole?
You can read the rest here.
The monetary and fiscal tools at hand are quite different in the US and the EMU (European Monetary Union). In the former, both fiscal and monetary tools are possible with the Fed managing monetary policy and the combined powers of the executive and legislative branches wielding fiscal policy.
The Euro is unprecedented since the ECB is able to use only monetary policy. Fiscal policy is wielded individually by the member states of the EMU. Such a "currency without an issuing country" is unprecedented in the history of the world.
If California were to slide into the Pacific, the US government could use its power of taxing the whole country to provide relief.
If Italy were to sink into the Mediterranean there is no one government around to exercise fiscal policy to provide disaster relief.