The world is focusing on two debt crises – the European and the American one. While the debates on raising the US debt ceiling must be resolved in by August 2 if the US is not to default, the European debt crisis is coming to a head even sooner.
This can be seen from the emergency meeting scheduled on Thursday in Brussels and the continued jockeying between European Central Bank and German Chancellor Angela Merkel over the parameters of the agreements.
It is also discernible in the rise of interest rates on Spanish and Italian debt and the declines on European stock exchanges to 11 month lows. While the American administration is concentrated on the American crisis, it continues to monitor the European crisis as if Europe goes into a tailspin, it will have global repercussions that include the US economy.
The American economy has enough problems even without the considerable aggravation that a global debt crisis can produce. An increasing number of columns in the American press implore the Europeans to get their act together while applying pressure on Dr. Merkel, who is seen as the key player in the arrangement.
Perhaps the most important of these opinion pieces was written by Professor Lawrence Summers, a former Secretary of the Treasury in the Clinton administration and a key economic adviser at the start of the Obama Administration. He can be regarded at least as a semi-official spokesperson of American policy. Summer's op-ed appeared in identical versions in both the Washington Post and Reuters.
Without mentioning the European protagonists by name, Summers told the Europeans that if they could not take themselves in hand others would have to do it for them
It is to be hoped that European officials can engineer a decisive change in direction but if not, the world can no longer afford the deference that the IMF and non-European G20 officials have shown towards European policy makers over the last 15 months.
Summers then condemned the punitive terms imposed on Greece, Ireland and Portugal mainly at German insistence, the countries who had received a bailout: "No country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors."
This was the equivalent of the Carthaginian peace imposed by victor states over the defeated ones. Interest rates would have to be reduced and the wealthier countries of Europe would have to assume joint liability shorthand for euro bonds that are being resisted by the Germans.
Additionally, he said, countries in Europe that are already nearing their borrowing limits "should be exempted from contribution requirements for bailout funds. The last of thing the marginal needs is to be pulled down by the weak." That means there will be an even heavier burden imposed on Germany.
In another paragraph that is sure to arouse tremors in Berlin, Summers warned:
"Debtor countries can only reduce their debts by running surpluses vis-a-vis the rest of the world. If traditional debtor countries are going to start running surpluses, traditional surplus countries must be willing to reduce their surpluses or move towards deficits."
Summers is taking direct aim at Germany. He is repeating the arguments that have been made by many that Germany is the major beneficiary of the euro because it makes German goods highly competitive allowing Germany to run up huge surpluses against the peripheral European Union states. It is not enough that Germany is willing to absorb workers from debt stricken states she has to buy more of their products.
Finally one should pay attention to Summers' warning to the European Union that it had to "shift from politically driven arithmetic to arithmetically driven politics." This is perhaps the most controversial of his arguments. Summers may be correct that the crisis requires everyone to put politics aside and seek a quick but lasting solution. Summers however was not elected Secretary of the Treasury nor were the citizens of Cambridge Massachusetts involved in selecting him as president of Harvard. Merkel and other European leaders have to face the voters and given the emergency the voters are looking for someone to blame rather than someone to follow.