Who's up for one more piece of worrisome economic news today? Katie's already caught you up to speed on the dramatic increase in weekly jobless claims (we'll need to see some additional post-Sandy data points to determine if this is a trend or an outlier), and Kevin ran through some of the basic figures behind our impending fiscal cliff. Let's hop across the pond to open door number three:
The euro zone debt crisis dragged the bloc into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed on Thursday. The French and German economies both managed 0.2 percent growth in the July-to-September period but their resilience could not save the 17-nation bloc from contraction as the likes of The Netherlands, Spain, Italy and Austria shrank. Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2 percent drop in the second quarter.
Back-to-back quarters of negative growth is the textbook definition of a recession. The pathetically anemic growth numbers out of Germany and France weren't nearly enough to offset nose-diving economic indicators in more than a handful of the EU's 15 remaining nations, with more dreary news likely on the way:
Those two quarters of contraction put the euro zone's 9.4 trillion euro ($12 trillion) economy back into recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression. A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009 is still reverberating around the globe and holding back a lasting recovery. Analysts said even the euro zone's top two economies were likely to succumb in the final three months of the year. "That was the last good number Germany for the time being," said Joerg Kraemer, chief economist at Commerzbank. "I don't expect the German economy to return to decent growth rates until the middle of next year. Most economists expect Germany to contract in the fourth quarter for the first time since the end of 2011. And where Germany goes, France is likely to follow.
So even Europe's two momentary life-preserver members are probably going to get sucked under by the Eurozone's destructive economic inertia by the end of the year. France isn't helping matters with its new confiscatory taxation policies being implemented by the new Socialist government (which is also attempting to ban homework, for purposes of "fairness," of course). When I interviewed Mitt Romney several months ago, I asked him how he'd help insulate the US economy from the inevitable shockwaves of severe Eurozone turbulence. His answer was that the key lies in strengthening our finances here at home and making America a clear economic safe harbor for businesses and investors. This would entail economic growth, of course, but it also requires getting our fiscal house in order, sooner rather than later. That's why the battle over the fiscal cliff is so meaningful -- as is the urgent need for real entitlement reform, a reality that even the Washington Post's editors seem to grasp. But Mitt Romney didn't win last week, of course, so all eyes turn (again) to Barack Obama. His initial post-election posture is unchanged from his typical mantra: He's dead-set against any plan that doesn't raise taxes on well-to-do families and successful small businesses. Not only would these tax hikes would reap a mere pittance in terms of deficit reduction, they'd kill an estimated 700,000 jobs. But that's besides the point to this president, who has flaunted a "fairness" fetish that defies actual outcomes or math (which he admits isn't his strong suit). Europe's economy is in recession. Some of the EU's most generous welfare states are collapsing, poisoning the entire region's economy and leading to civil unrest on the home front. The United States is also facing a looming debt crisis, even if some of the president's most ardent supporters choose to bury their heads in the sand on this point. Will America flex its exceptionalism muscles and head-off our mess in a responsible manner, or will we slide into oblivion with the government-centric economies of Europe?
UPDATE - According to Gallup, a majority of Americans now favor a "balanced" deficit reduction plan that consists of at least equal parts tax increases and spending cuts. I wonder how many of these people will change their tunes once they figure out that this path would trigger massive, across-the-board tax hikes on the middle class. Based on the president's rhetoric, many Americans may believe that there's more than enough revenue to be milked from "the rich." Obama's proposed plan would raise (at best) $83 Billion per year, a tiny fraction of our annual $1 trillion deficits. A truly "balanced" approach would require finding more than $400 billion in additional tax hikes every year, in addition to the new Obamacare taxes -- to say nothing of the economic impact. Hold on to your wallets, middle class families.