Remember when, at the height of the crisis, critics were lambasting the American economic model and praising the stability of Europe?Well beyond European sovereign debt fears, there’s a simple damning fact for Europe in the recent GDP data.
As highlighted by the Wall Street Journal, in the fourth quarter of 2009 U.S. GDP growth was annualized 5.7% while that of Europe was just a near-double-dip 0.4%.
Even if the U.S. economy was boosted by some one-off effects in Q4, the wide disparity between these growth rates implies that, as the WSJ says, ‘a few things were done right in the American response to the economic crisis of the past two years, and a few things less right in Europe.’
One important difference that caught our eye was that U.S. banks appear to be in better shape than those in Europe right now.
“Our policy has done more, and sooner, in that direction than Europe has been able to do, or in some cases, wanted to do,” says Mr. Mussa [a former IMF economist]. In addition, though the U.S. hasn’t succeeded yet in legislating a full change in its financial-regulatory system, regulators’ moves in that direction have helped to prod banks to clean up their balance sheets, reduce their leverage and shore up their capital. Data show that American banks have written down bad assets and raised new capital faster than their European counterparts, and have reduced their leverage further.
Thus for all their failings, the ‘stress tests’ might have done some good. Stimulus too:
As a result, financing is at least starting to move more normally through the U.S. banking system.
And, yes, that stimulus package has added some to growth. Perhaps best of all going forward, one of the complaints voiced a year ago by critics of the stimulus — that its big infrastructure projects would take so long to roll out that they wouldn’t be of much immediate help on the jobs front — has proved correct. That means there’s more in the pipeline to be spent this year than was rolled out last year.
The tables can turn fast, but right now the U.S. is killing it, relatively. Jobs are still a huge problem. But even on this metric the U.S. could soon be looking better than Europe. Employment is, unfortunately, a lagging economic indicator, so it will look good only once everything else does. Which will still be a while.