Effect of Global Economic Slowdown on Milwaukee Company

My local newspaper, the Milwaukee Journal Sentinel, published an article this week about the global economic impacts on the Milwaukee based mining company, Joy Global.  The short-term outlook for the company appears to be rather measly due to globally weak mined comodity prices, slowing Chinese industrial economic activity, and lower U.S. natural gas prices.  Equally important, the  slower pace of the U.S. economic growth and its fiscal cliff,  European debt, and slow growth in China are also adversely impacting the growth prospects of the company.  As a result, mining companies will likely decline capital spending from 5% to %10 by cutting capacity and closing some factories in order to prepare for the looming challenge of a difficult business market.  A company like Joy Global has a lot at stake when it comes to the global mining, as nearly 100% of its invested capital and and operating profits are in mining, whereas a company like Caterpillar Inc. has less at stake with only half of its capital invested in mining.  However, this problem is only cyclical, and Joy Global has a rather positive outlook on the long-term prospects.  As the article notes, even though the Chinese economy has slowed recently, China is still is one the world's largest users of coal, and produces nearly half of the world's steel.  Back in September,  The Wall Street Journal posted an article about the news of the Chinese government passing a $156 billion infrastructure bill as a means for boosting their industrial economic activity.  With a huge increase in steel production comes an increased demand for iron ore, which is mined by the heavy machinery manufactued by Joy Global.  The Journal Sentinel article also mentions that more developing nations are demanding mined commodities.  With that in mind, Joy Global has globally expanded their-service centers and increased manufacturing in emerging markets.  The effects of these promising global changes have made their effect locally.  P&H Mining Equipment, a Milwaukee based subsidiary of Joy Global employs more than 800 people and is looking to hire even more employees for skilled-labor positions as they increase production of their mining shovels and drilling rigs. If, however, the global economy prospects do not play out as predicted, Joy Global is well-prepared to cut costs by outsourcing these manufacturing jobs to countries with lower labor costs such as China, South Africa, and Poland.

You can read the Milwaukee Journal Sentinel article here:

http://www.jsonline.com/business/economic-slowdown-felt-at-caterpillar-joy-global-787pun0-180936761.html

Leftovers

For all of you still salivating at the thought of your Thanksgiving feast this past Thursday, I found this graph on the Economist today which depicts the increase in inflation since 2008 in terms of turkey prices:

Anyone else worried about the rising "pecuniary cost" of Thanksgiving dinner?

Credit and Blame

I recently read a Wall Street Journal article from 2007 for my Econ 211 class that offers an interesting scope into the years leading up to the Great Panic of 2008.  The article describes how rating firms like Standard and Poor’s, Moody’s Investors Service, and Fitch Ratings catalyzed the subprime mortgage crisis of the early 2000s. During this boom in sub-prime mortgages, as we learned in class a few weeks ago, borrowers with weak credit were able to take a “piggyback” loan or a secondary loan to help pay for the down payment of the mortgage.  Underwriters then assembled these extremely risky loans into securities which were sliced into “tranches,” with the riskiest of tranches having the highest level of return.  As we know, during this time, the Fed  was keeping interest rates low; so many investors were in search for these high-risk/high-return securities.  When housing prices finally fell, and the sub-prime mortgage bubble burst, many were left wondering how the tranches containing the extremely risky sub-prime mortgage bonds received such good ratings.  The reason lies within the role of the rating firms in the sub-prime market.  Rating firms receive fees about twice as high when they rate securities containing a pool of home loans.  If underwriters didn’t receive a good enough rating for their tranches of securities, they would take their business to a rating company that would give them a better rating.  They called it "best execution" or "maximizing value," but in reality they were shopping around for a good deal on a fabricated rating.  As a result, some of riskiest tranches were given triple-A ratings, and because many hedge funds and money managers relied on these ratings, they bought securities in large quantities.  Enter a sudden and unexpected rise in housing prices, and you know the drill.  

After reading this article, I am a bit more reluctant to point the blame at the Alan Greenspan and the Fed for the monetary policy they enacted during this time.  Their policy was merely a groundwork that would provide for honest economic growth, but unfortunately would be taken advantage of by a culture of greed on Wall Street.  Shady backdoor deals between underwriters and executives at ratings firms are just one of the many components that caused the Great Panic of 2008.  If we experience a promising economic environment again in the future, hopefully the volatile actors of Wall Street won't be overcome by a voracity for personal profit, and realize the risk involved in the decisions they make.

Meltzer Lecture: "Socialism is Dead, but Social Welfare Lives On"

I appreciate Simone's comment regarding German taxpayers paying for other countries failed welfare systems because it was one of many topics covered tonight in Professor Allan Meltzer's lecture "Socialism is Dead, but Social Welfare Lives On."  Meltzer, a professor from Carnegie Mellon's Tepper School of Business, founder of the Shadow Open Market Committee, and author of A History of the Federal Reserve, a book considered to be one of the most comprehensive histories of the central bank, is an expert on monetary policy and the Federal Reserve. 

Before his lecture, I was fortunate enough to attend a Q&A session with Meltzer where I received a copy of his most recent book, Why Capitalism?  The context of the Q&A, which focused mainly on the Federal Reserve and monetary policy leading up to the 2008 Great Panic, could not have come at a more opportune time as it supplemented what I had learned from David Wessel's In Fed We Trust.  Meltzer would agree with Wessel that Alan Greenspan kept interest rates too low for too long, as he was afraid of deflation.  But quoting Immanuel Kant, "out of timber so crooked as that from which man is made, nothing entirely straight can be carved," Meltzer emphasizes that no human is perfect, and admits that the problems of capitalism stem from human weakness, but human weaknesses are not specific to capitalism.  Meltzer shifts the blame towards government housing policy.  Around 2005, the Housing and Urban Development Agency encouraged the use of "piggyback" mortgages, or mortgages with no initial down payment. Paired with immense political pressure to put people into houses even though they couldn't afford the mortgage, government-sponsored financing agencies like Fannie Mae and Freddie Mac began to buy these subprime loans, thus fueling the housing bubble which inevitably burst in 2008.  Meltzer believes that social welfare systems attempting to redistribute wealth in capitalist market economies ultimately fail, and Fannie Mae and Freddie Mac are one of many examples.  Meltzer would later delve into the other examples of inefficient welfare programs, such as the Weatherization Assistance Program.

During his lecture in Stackhouse, Meltzer focused primarily on the dysfunctions of social welfare programs and how they must be ameliorated in the face of this global economic crisis.  He started off by saying that European countries boasting extensive welfare programs have not surpassed the more market-oriented United States, and are the main cause to the EU crisis.  Greece for example has experienced a longer, deeper, and wider crises than the Great Depression due to a society structured around a costly welfare system.  Like I posted in our first writing assignment, the struggle for these EU countries lies within the dichotomy between stimulus spending and austerity.  Meltzer simplified the concept to "wanting more consumption now vs. receiving more from long run growth."  Essentially, the fiscal burden is so deep, that it cannot be paid for in taxes; rather, more can be paid for by cutting spending in the short run and balancing the budget, which will ultimately allow for lower tax rates in the future.  Meltzer believes that Greece must face the hard reality that it is hard to find a solution that fits everyone's needs, and a cut in living standards is inevitable.  As made apparent by Simone in her blog-post today, Germans do not want to pay for the economic woes of a failed welfare state like Greece.  As Meltzer put it, "German's who retire at the age of 65 do not want to want their hard earned money going to Grecian's who retired ten years prior at the age of 55." 

At the end of his lecture, Meltzer focused on the home-front.  He prefaced his conclusion by proclaiming that no agency should have the power the Fed has given itself.  In the near 100 years since its birth, the Fed has never made clear its "lender of last resort" policy.  That is why, Meltzer argues, that we have nearly $1.8 trillion worth of excess reserves today.  To prevent this from happening in the future, Meltzer believes that the Fed should follow a set-in-stone "lender of last resort" standard.  He supported this claim by referencing that the two periods of the most economic growth in the U.S., the Fed was bound by some sort of rule.  From 1923-1928, it was the gold standard; and from 1985-2003 it was the Taylor Rule.  Looking forward, Meltzer believes we need to separate ourselves from becoming a social welfare state with more regulations, because the social welfare state is prisoner to interest groups, and regulations are set up by lawyers and bureaucrats who know how to circumvent them.  It is an unsustainable path, and there will be no way to end the probable inflation due to the $1.8 trillion worth of excess reserves without a temporary rise in unemployment.  Therefore, Meltzer concluded, "capitalism works best in a stable environment that permits people to achieve their plans.  To achieve the growth and freedom that only capitalism provides, countries must adopt rules that force policymakers to plan for the medium term and prevent inflation."

Book Review: In Fed We Trust

In his 2009 book, In Fed We Trust: Ben Bernanke’s War on the Great Panic, David Wessel, an economics editor for the Wall Street Journal, encapsulates one of the most pivotal times in our country’s history and the history of the global economy.   Not only does he offer the reader a fly-on-the-wall perspective during some of the most frenzied closed-door meetings between chief economic actors like Ben Bernanke, Timothy Geithner, and Henry Paulson, he also illuminates the historical context of the Federal Reserve and its role in the U.S. economy since its inception in 1913.  Most importantly however, Wessel intently focuses on Ben Bernanke’s role as the Chairman of the Federal Reserve during the Great Panic, and how his expertise on the Great Depression of the 1930s inspires his “whatever it takes” policy to prevent it from ever happening again.

Before the Great Panic, the Federal Reserve was considered to be a “lender of last resort,” which usually entailed lending to sturdy commercial banks at times of high speculation when customers wanted to pull their money out.  But by 2008, the Federal Reserve became what Wessel labels “the pawnbroker of last resort,” lending heavily to investment banks, insurance companies, auto finance companies, etc. that all went bust.  But how could it get this bad?  Why would Ben Bernanke be forced to extend the Federal Reserve far beyond its traditional role?  Wessel partially blames Alan Greenspan, the Chairman of the Federal Reserve from 1987-2006.  During his term, interest rates were kept too low for too long.  With such low interest rates, investors took greater risks in order to receive higher returns.  Yet these risky bets were placed on the flawed assumption that the economy would be stable in the long run, and in regards to the housing market, housing prices would never fall.  That would eventually prove to be false, and the housing bubble would burst.

Of course, Bernanke was faced with some tough decisions, but being an expert on the Great Depression, Bernanke knew what not to do: stand idly by.  According to Bernanke, the Depression of the 1930s was largely the Fed’s fault, and under his watch, he would ensure that that would not be the case. He would do “whatever it takes.”  Wessel emphasizes that the Fed had to exceedingly extend its powers to curb the threat of another full-blown depression.  In March 2008, the Fed saved Bear Stearns to the tune of $30 billion, the first time the Fed ever directly gave money to a failing firm.  Yet it wouldn’t do so with Lehman Brothers.  The Fed certainly had the power and resources to bail out Lehman Brothers, but neither Ben Bernanke, nor Secretary of the Treasury Henry Paulson were content to do so due to the poor image it would portray, seeing they just used $30 billion of tax-payer money to bail out Bear Stearns.  The Fed however would continue to reach even further, bailing out A.I.G. and welcoming a Congressional stimulus package of $700 billion. 

Though Bernanke’s unheralded response to the Great Panic prevented the U.S. economy from outright catastrophe, it has certainly burgeoned undesirable attention to the Federal Reserve’s ability to act as what some call “the fourth branch of government.”  Much of the derision towards the Feds actions can be attributed to how their policies were delivered.  Geithner called this "getting the substance and the theater right."  How a policy is framed is just as important as the policy itself, and because Bernanke, Paulson, and Geithner failed to offer a clear explanation of the policies they were enacting, it left people uncertain about the power the Fed held.  Rather than critique the amount power and leverage the Fed used to prevent a repeat of the Great Depression, critics should focus their worries on the Fed’s shortcomings prior to the Great Panic.  The worst loans that created the credit bubble were subject to little or no federal regulation.  Wessel agrees that the Fed’s inability to see the Great Panic coming is worrisome, but he lauds Bernanke’s response.  He ends his book with some food for thought.  What if Ben Bernanke had not resolved to do “whatever it takes” to prevent a second Great Depression? Would we be worse off?  I myself think we would be worse off had it not been for the Fed stepping in.  What does concern me however is the amount of excess liquidity due to the bailouts.  As we’ve discussed in previous classes, high inflation spells disaster for an economy facing a recession.

No mention of Latin America in the 3rd Presidential Debate

            After watching the debate the other night, I recall Mitt Romney briefly mentioning the importance of the Latin American economy. Yet that was all that was mentioned about Latin America.   We’ve heard so much rhetoric about “being tough on China,” but nothing has been said about the optimistic economic ventures that lie ahead with Latin American countries like Mexico.  It’s odd that one of the most vital aspects of U.S. foreign policy was not even considered a topic of discussion in the debates.  Just to give a ball-park figure of our trade involvement with Latin America, the U.S. exported more to Mexico than to Russia, India, and China combined in the past year.  Other sources claim that roughly six million American jobs depend on trade with Mexico.  HSBC has recently reported that by 2018, Mexico will overtake Canada and China in becoming America’s main source of imports.  Looking more in depth into the topic, I came across an article in The Economist that pairs well with our recent reading about the Mexican Tequila Crisis in Paul Krugman’s The Return of Depression Economics.  The article, “From Tequila Crisis to Sunrise,” describes how the Mexican economy has steadily grown in the past few years and how Mexican banks have become stronger and much more reliable.  This sort of news is a significant departure from their bad reputation in the early 90s when they lost financial credibility by completely botching the devaluation of the peso.  Today, the tables have turned. According to the article, “The countries’ changing fortunes are partly due to slowing growth in China, a big buyer of Brazilian commodities and bitter rival of Mexican manufacturers.”  Pairing that with an increase in Chinese wages, and the rising cost of shipping across the Pacific Ocean, Mexico has become progressively more attractive to foreign investors.  Not only have Mexican banks become profitable due to the promising economic environment, but they have also become increasingly stronger and more responsible.  For example, the Mexican government has taken measures to restrict foreign financial institutions in Mexico, like Spain’s Santander, from transferring capital out of their Mexican subsidiaries to address problems in their home countries, according to a recent Fox News Latino article.  The banks also have extremely strict credit-scoring process for interested borrowers.  These sorts of measures would certainly be reassuring for an economist like Krugman who blames the tequila crisis of the early 90s on Mexican policy errors.  Now that Mexico is attractive again for foreign investment, it seems that this time around they have their heads on straight, and hopefully we won’t see another  tequila crisis as long as they keep their currency stable.

The one thing that is holding them back however is the violence of the drug cartels.  According to Jorge Sicilia from BBVA, without the violence and influence of the drug cartels in the region, the Mexican economy would have grown at a rate 1% higher than the rates of the past few years.  The cartels are a parasite to the growing economy, as they extort Mexican businesses and deter tourism to areas like Acapulco with their public displays of violence.  During the debate, had more time been allotted to the topic of Mexico and the Latin American economy, or had Romney pivoted like he does so well when asked about what loopholes he'll close in his tax plan, I think it would have been an advantage for Romney.  It would have given him the opportunity to elaborate his “Campaign for Economic Opportunity in Latin America,” and it would also have provided fodder for criticizing Obama over the disastrous Fast and Furious gun-walking scandal.  Unfortunately, the only sound byte I heard regarding Latin America was during a brief tangent from Romney: “The opportunities for us in Latin America we have just not taken advantage of fully. As a matter of fact, Latin America's economy is almost as big as the economy of China. We're all focused on China. Latin America is a huge opportunity for us.”   
So what have we learned from these debates?  The military has fewer horses and bayonets, Mitt Romney has binders full of women and he also loves teachers, Big Bird, and the economic opportunities in Latin America.  Seriously though, If Romney wins he will initiate CEOLA within his first 100 days in office.  If that's the case, I’m interested to see how trade relations between the U.S. and Latin America further develop in the years to come. 

You reap what you sow...just sow more

I just read an article today on Reuters that directly ties to Kate’s blog-post about Africa’s resource curse.  The article highlights a recent study by The International Maize and Wheat Improvement Center that found that countries in Sub-Saharan Africa are only producing 10-25% of its wheat production potential.  As Kate noted, resource-rich African countries have failed to make a large dent on their poverty levels.  But the article I read points to brighter futures as long as some of these agriculturally rich nations take actions to increase potential wheat production.  It would be a big step forward towards self-sufficiency as it would help curb starvation, limit political instability, and avoid the price shocks of global wheat imports.  As the report estimates, in 2012 African nations will have spent approximately $12 billion on wheat imports.  This is great for American farmers, considering a significant amount of crops like wheat and corn are exported to Africa, but this places impoverished nations in a tight spot when the prices on these imports spike unexpectedly.  Especially this past summer, record level droughts in the Midwest spiked food prices internationally.  I remember various news sources predicting food riots and political instability in impoverished nations that rely on the US for food imports, a la the bread riots of years previous in Mozambique. As the IMWIC suggests, many Sub-Saharan African nations do not need to subject themselves to these sorts of peril.  As Bekele Shiferaw, a lead author of the study notes, “If Africa does not push for wheat self-sufficiency, it could face more hunger, instability and even political violence.”  Rather than spending the money to import the crop themselves, countries like Rwanda, Burundi, Ethiopia, Kenya, Madagascar, Tanzania and Uganda could take the money spent on imports and invest in fertilizer as their natural resources have the proven biological capacity to produce high yields of wheat production.  Essentially, why rely imports with unstable prices when you can reap the benefits of local wheat production?  The study points to 2008 as a perfect example when Zambia and Rwanda were able to dodge international price shocks because they were able to sufficiently produce domestic crops. 

Though the biological potential is there, infrastructure is the one thing that stands in the way.  According to Hans-Joachim Braun, the director of the IMWIC’s wheat program,  “The big issue is the road infrastructure. It doesn't help very much if the farm is far from the cities.” 

As noted by Stiglitz in Making Globalization Work, Africa was unfortunately bypassed by the Green Revolution of the late 20^th century, due to “widespread corruption, insecurity” and “a lack of infrastructure” (42).  It is within this issue that Kate’s blog-post comes into context again.  If they decide to do so, how will these nations finance projects to improve their infrastructure?  Is their path to agricultural self-sufficiency contingent upon foreign direct investment in infrastructure?  If so, there is the possibility of continual inequality and corruption due to opaque policies and a lack of international governance.  In the years to come, it will be interesting to see how these Sub-Saharan African countries will go about obtaining complete self-sufficiency in wheat, if they choose to do so.

Patents, Monopolies, and New Growth Theory

-->

I think our class discussion on Tuesday regarding Stiglitz’s view of patents connects well with Peter’s blogpost a few weeks ago about Paul Romer’s New Growth Theory.  Stiglitz mainly dedicates his discussion of intellectual property rights in Chapter 4 in Making Globalization Work, but in Chapter 7 he refers to it again when discussing the ills of multinational corporations.  He criticizes Microsoft’s monopoly power in PC operating systems, claiming it to lead to higher prices and less innovation.  On this notion, Romer would disagree.  In a 1999 Wall Street Journal article titled “Wealth of Notions,” Romer highlights some key aspects of his New Growth Theory, using Microsoft as a prime example.  He notes that Microsoft Corp. invested hundreds of millions of dollars to develop the first copy of Windows software.  The next copies after that cost virtually nothing in comparison.  Essentially they’ve built their own platform that allows for immeasurable amounts of innovation in the future.  Yet unlike Xerox Corp. or Apple Computers who adapted their own innovative platforms but set prices very high, Microsoft sold their technology at comparatively lower prices.  Romer would agree with Stiglitz when it comes to limiting patents.  Romer acknowledges that knowledge-based economies tend to produce quasi-monopolies like Microsoft, but with limited patents they have to face what Romer calls “their inevitable comeuppance,” and what economist Joseph Schumpeter called “creative destruction.”  Essentially, with a shorter window of patent protection, Microsoft faces the possibility of other firms innovating off of its original operation system platform.  The looming effect of this competition would spur a quasi-monopoly like Microsoft to innovate faster.  In comparing Romer and Stiglitz’s deliberations regarding patents, innovation, and mutli-national corporations, its apparent that economic growth and efficiency, especially in the knowledge-based economy, hinges heavily upon the transferring of ideas between multinational corporations.  In Stiglitz’s view, these ideas need to be made freely available especially for developing countries to flourish in this global economy.

Obama's Tire Ad

As I cringe at the Green Bay Packer’s lackluster performance thus far against the Seahawks, I couldn’t help but cringe even more after seeing Obama’s new campaign ad championing his own protectionist tariff against Chinese tires.  After discussing Coughlin et al.’s article “Protectionist Trade Policies: A Survey of Theory, Evidence and Rationale” in class last week, I agree with Mitt Romney’s statement which Obama attacks.  Obama’s ad quotes Mitt Romney as saying, “President Obama’s action to defend American tire companies from foreign competition…is decidedly bad for the nation and our workers.”  But what isn’t featured in the TV ad is Romney’s overall view of protectionism, one which Coughlin et al. would certainly favor.  Romney states, “Protectionism stifles productivity.”  Sure, a 35% tariff on Chinese tires shielded 1,000 American jobs from foreign import competition, but what good will it do for the economic well being of the entire nation during this time of financial crisis? According to Cornell University professor of trade policy Eswar Prasad in a 2009 Bloomberg Businessweek article, this tariff doesn’t bode well at all.  Prasad claims that the tariff could "easily ratchet up into a full-blown trade war and inflict serious economic damage on both countries.”  Of course the purpose of protectionist tariffs is to protect American jobs, and it’s great to see that Obama “saved” 1,000 American jobs from the terrible beast that is Chinese imports, but the American public needs to look past the sensationalist mudslinging and realize the broader negative effects that protectionist tariffs have on rest of the nation.  Tariffs result in higher prices of the protected good, and as Coughlin et al. simplifies “domestic producers of the protected good and the government gain; domestic consumers and other domestic producers lose.”  A petty analysis of Obama’s ad makes it look as if Obama has the blue-collar sector in his best interest.  Is Obama really that concerned about shielding a meager 1,000 domestic jobs from foreign import competition? Has he considered the overarching economic costs that outstrip the minor benefits?  As this three-year tariff is due to expire, it doesn’t appear that Obama will let that happen, as noted by Huffington Post’s Jon Ward in his recent article, especially now as he campaigns in Ohio, a state known for its many tire manufacturers.  That being said, Obama is embellishing the minor benefits of a protectionist trade policy he enacted in 2009 merely as a move to boost his image, and tarnish Mitt Romney’s with the forthcoming election in November.

Setting the Precedent with Greece

  What is the greatest challenge facing the leading actors in the international political economy in the 21^st Century?

Nearly a decade into the 21^st century, the international political economy was faced with an unforgiving global financial crisis.  This worldwide recession certainly took its toll on the Eurozone countries as today they still face an ongoing sovereign debt crisis.  Nations like Greece, Spain, Italy, and Ireland all face increasing unemployment, substantial budget deficits, and an inability to repay debts to their various creditors.  Yet economic powerhouses like Germany have fared rather well in comparison.  Though all of these countries are united under a single currency, fiscal policy drastically differs amongst each of the member nations of the EU.  Within this structural rift lies the toughest task for the leading actors of the EU, ECB, and IMF.  Which fiscal policy will best stimulate economic growth without further increasing the already massive debt?  Do they impose austere economic strategies to cut spending and balance budgets, or spend more to stimulate job creation? Finding common ground certainly remains a task to be contended, and what the leading actors do in regards to Greece will set the precedent for solving the entire Eurozone crisis.

Indisputably, Greece went far beyond their budgetary means upon joining the Euro at the turn of the century.  They overspent on high public sector wages and benefits, meanwhile going way over budget in spending for the 2004 Olympic Games in Athens.  To make matters worse, high rates of tax evasion left the Greek government in a steep budget deficit leading into the financial crisis.  Certainly, the multi-billion dollar bailout from the IMF and the EU was essential to keep Greece afloat during these tough times, but many members of the IMF and EU believe its time for Greece to show some skin in the game. As the largest and arguably the most successful economy in the Eurozone, Germany wields a large amount of influence.  Many leading actors in the Eurozone economy side with German Chancellor Angela Merkel’s hawkish fiscal policy, and believe Greece should undergo substantial austerity reforms which include tax increases and major cuts in wages, pensions, and benefits.  Many argue that the reason why Germany is such a powerful and successful economy even during today’s crisis is due to the fact that they froze wages to supplant the cost to rebuild the former East Germany after the Berlin Wall came down in 1989.  With this mindset, many conservative leading actors are confident that if Greece buckles down and balances their budget, lenders will become more confident in the Greek economy, borrowing costs will be lowered, and Greece will be able to repay their debts.

However, these proposals have been met with fervent backlash.  After years of blatant tax evasion and comfortable pension benefits, much of the Greek citizenry are not all that quick to face higher taxes and sweeping cuts in public sector spending.  It also seems that many of the other indebted countries share in Greece’s reluctance.  Just this past week there have been large anti-austerity protests in Spain and Portugal.  But the same situation occurred in the United States this past year.  Wisconsin Governor Scott Walker’s embarked an austere fiscal policy, and even faced an unprecedented recall election for his budgetary policy.  Though his policies were delayed by political backlash, he was still able to reduce a $3.6 billion deficit by reducing costly public sector pensions and benefits without raising taxes.  Unfortunately, it does not seem as if the same will occur in the Eurozone.  There are many opponents, including France, who believe stimulus spending to be a better way to renew confidence and job creating in these indebted countries. 

The fact of the matter is that the leading actors of the EU, IMF, and ECB must find some common ground in the dichotomous argument between austerity and growth.  Greece cannot default; otherwise a stark example will be set for other struggling countries like Spain, Portugal, and Italy.  If these countries cannot find a way to repay their debt, the economic crisis will further spiral downward, making it that much harder for the Eurozone to return to a thriving economy.