– February 18, 2010Posted in: Finance
California’s economic woes can do more damage to America’s recovery than Greece’s can do to Europe’s. Yet which of the two may be getting a bailout?
By Harold Meyerson
If I were the governor of California, cursed with an insoluble budget crisis, and if I had asked the federal government for help and been rebuffed, and if I hailed from Europe and noticed that the European Union had agreed — in principle at least — to bail out Greece, I might be mumbling, “Vut gives?”
When Greece (a charming though relatively piddling land) comes calling in Brussels, it gets embraced (and lectured); when California (an economic powerhouse) comes calling in Washington, it gets, almost universally, the cold shoulder.
The reason France and the other economic powerhouses of Europe have said they will ride to Greece’s rescue is that they share a common currency, and Greece’s default could wreak havoc with the value and viability of the euro and, by extension, with the whole of the European economy.
But California and the United States share a common currency as well. And talk about wreaking havoc: There is no legal provision under which an American state can default, whether Carly Fiorina knows it or not, so California can’t repudiate its debts. What it can do, however, is raise taxes and tuition and lay off teachers, cops and nurses. And to truly bring its budget more into balance, it must do this on a massive scale, surely engendering a new round of disastrous foreclosures and bank failures.
Besides, California matters economically a lot more to the United States than Greece does to Europe. California is, of course, the largest state; one out of eight Americans is Californian, and the state’s economy makes up roughly 13% of the nation’s gross domestic product. Greece is home to just 2% of the EU’s citizens and constitutes 2% of the EU’s GDP. Though California’s woes may not directly destabilize the dollar, they can do more to retard America’s recovery than Greece’s travails can screw up Europe.
It’s true that both the Golden State and the Cradle of Democracy have massively dysfunctional political cultures. Arguably, Greece’s new Socialist prime minister, George Papandreou, has made a more impressive start at cleaning up his nation’s chronic corruption than California has done in dealing with its political gridlock. But each of these economies would be beleaguered — California has lost most of its major manufacturing and Greece never really had any — even if their political systems ran like a Swiss watch.
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