Who’s to Blame if We Double-Dip?

Five people, places, and things everyone's wagging their fists at as the markets crash.

WASHINGTON - OCTOBER 22: (L-R) Stephen Joynt, president and CEO of Fitch Ratings, Raymond McDaniel, chairman and CEO of Moody's Corporatio, and Deven Sharma, president of Standard & Poor's, are sworn in during a hearing before the House Oversight and Government Reform Committee on Capitol Hill October 22, 2008 in Washington, DC. The hearing was focused on credit rating agencies and the financial crisis. (Photo by Alex Wong/Getty Images)


There will be plenty of blame to go around if the global economy tips into a double-dip recession. U.S. President Barack Obama on Friday, Aug. 5, spread the responsibility widely, citing a “tumultuous year” that has included the Arab revolts, the earthquake in Japan, the crisis in Europe, and partisan battles over spending in Washington.

But many of the leading global players in the ongoing financial drama have already begun casting stones at more specific targets. Here’s a look at the world’s favorite scapegoats.


Arguing that their countries’ economies are fundamentally sound, the governments of Spain and Italy cast blame for their climbing interest rates on shadowy “speculators” operating through the major international credit rating agencies. In late June, Italian Prime Minister Silvio Berlusconi told Parliament, “Rating agencies are keeping us under observation, and the locusts of international speculation are waiting for the right moment to hit prey that shows signs of weakness.” Spanish Prime Minister José Zapatero made a similar diagnosis earlier this year, describing “an attack under way by speculators against the euro, against tougher financial regulation of the financial system and of the markets.”

As part of what seems to be a politically motivated attack, Italian prosecutors raided the offices of the Moody’s and Standard & Poor’s rating agencies on Thursday, citing “anomalous” fluctuations in the prices of Italian bonds.

Alex Wong/Getty Images



As leader of Europe’s largest economy, German Chancellor Angela Merkel has come under fire for not doing enough to right the continent’s ailing economy. Much of the grumbling has come from bailed-out countries like Greece and Ireland not happy with harsh conditions the German government has insisted on imposing in exchange for loans. And the international press — most notably the Financial Times and the Economist — has been relentless in portraying Merkel as an indecisive and undependable crisis manager.

But increasingly, the criticism is coming from within Germany itself. The Social Democratic Party, the country’s main opposition party, has criticized the chancellor for not taking the current crisis seriously enough. (On Friday, one Social Democrat demanded that Merkel cut short her vacation in northern Italy.) Even former Chancellor Helmut Kohl, Merkel’s political mentor, has castigated her for besmirching their Christian Democratic party’s pro-European reputation — and his own personal legacy as one of the founders of the euro.



The EU summit held on July 21 was intended to help fortify the reeling eurozone. But while the agreed-upon measures — including a second bailout for Greece and a newly empowered and enlarged bailout fund — managed to provide temporary relief, the European periphery has again found itself forced to pass new austerity measures. There’s increased anxiety not only on the continent — controversy over Spain’s latest belt-tightening has even forced an early election there — but around the world, as investors are taking a second look at their European securities.

Part of the reason the latest bailout didn’t take is Europe’s complex and balky political process. That raft of new stabilizing measures still needs to be passed by national legislatures, most of which are on vacation through the month of August. Until parliaments are back in session, the European Union’s new bailout money exists only in theory, not in practice — which doesn’t do much to reassure international markets. Olli Rehn, Europe’s commissioner for economic and monetary affairs, has said that lengthy delays are the price that Europe has to pay for ensuring democratic legitimacy. The weeks-long delay was the “necessary — and legitimate — price to pay for living in democracies.” Uninterrupted vacations — all in the name of republican virtue.



The world’s largest economy, the United States is undoubtedly at the center of the current turmoil. Unfortunately, Washington has been receiving conflicting signals as to what it ought to do about it. Christine Lagarde, the new managing director of the International Monetary Fund, has suggested that America’s extreme political polarization — which, not long ago, nearly caused the country to fail to raise its debt ceiling and thereby threaten default — is the cause of international uneasiness. Meanwhile, China’s vice president has pinned the blame on the Federal Reserve’s loose monetary policy — though that may reflect a parochial concern for China’s currency reserves more than anything else.



As the most autonomous European economic institution, the European Central Bank (ECB) should be expected to take a leading role in resolving the eurozone’s debt crisis. Unfortunately, the bank has been looking for ways to pass the buck. As Nobel Prize-winning economist Joseph Stiglitz has pointed out, the ECB has shown a marked reluctance in recent weeks to invest in distressed bonds of European countries like Greece, Ireland, Portugal, and Spain, insisting instead that the European Union’s newly designed bailout fund assume that role instead. On Friday, ECB President Jean-Claude Trichet partially reversed that position by agreeing to begin buying bonds from Ireland and Portugal. But that’s only a piecemeal measure, so long as major economies like Italy and Spain are teetering on the brink.


Cameron Abadi is a deputy editor at Foreign Policy. Twitter: @CameronAbadi

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