The cavalry is riding to the rescue of poor little Greece. German Chancellor Angela Merkel and French President Nicholas Sarkozy both assured embattled Prime Minister George Papandreou last week that they were firmly behind him and would not let Greece default or force it out of the euro zone.
But if Mr. Papandreou is quietly skeptical about these reassurances, who can blame him? Europe's politicians have been dithering for more than a year over what to do about Greece and the other PIIGS which now threaten to drag the world into another banking crisis and recession. Ms. Merkel, in particular, has been sending all kinds of mixed signals about where she really stands on the issue. Small wonder: German voters, it appears, are fed up with bailing out their profligate partners.
Meantime, central banks are promising to keep cash flowing to European financial institutions to avoid another credit crunch, and the European Central Bank is stepping up its purchases of PIIGS bonds. U.S. Treasury Secretary Timothy Geithner flew to Poland to speak at a meeting of euro zone finance ministers and central bankers and his message was very simple: If you don't get your act together you risk plunging the world into a "protracted" economic downturn.
Of course, the fact the U.S. is in such a mess doesn't help the situation or his credibility, a reality Mr. Geithner referred to when he described America's domestic politics as "terrible." That view was echoed by Christine Lagarde, the new head of the International Monetary Fund, in a speech in Washington. "The vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction," she said.
That stinging rebuke of world leaders evokes the spectre of the early 1930s when politicians vacillated over how to respond to the crash of 1929 and ended up enacting dreadful legislation such as the Smoot-Hawley Tariff Act of 1930. It set off a beggar-thy-neighbor chain reaction that had the effect of turning a bad situation into an economic disaster.
Unfortunately for all of us, we seem to be in a similar situation now. No one in power has a clue about how to get us out of the current mess. President Obama's much-touted jobs program in some ways repeats the errors of Smoot-Hawley with its "Buy America" provisions. What kind of message does that send, not only to Canada but to all U.S. trading partners?
As Ms. Lagarde bluntly points out, we're in a kind of death spiral and there is no pilot with the skills to pull us out of it. That's why I view stock market rallies such as the one we briefly enjoyed on Thursday as an aberration. I am also dubious about the OECD's latest pronouncement that a new recession is unlikely and, if it should happen, it won't be as bad as 2008-09. I hope this is not a matter of whistling past the graveyard, but I fear it is.
So my basic advice is unchanged: caution, caution, caution. To that I would add: Hope for a political miracle. It is still possible to get out of this situation with minimal damage but it will require some innovative and speedy action in both Washington and Europe. I doubt the will is there to make it happen.
But if Mr. Papandreou is quietly skeptical about these reassurances, who can blame him? Europe's politicians have been dithering for more than a year over what to do about Greece and the other PIIGS which now threaten to drag the world into another banking crisis and recession. Ms. Merkel, in particular, has been sending all kinds of mixed signals about where she really stands on the issue. Small wonder: German voters, it appears, are fed up with bailing out their profligate partners.
Meantime, central banks are promising to keep cash flowing to European financial institutions to avoid another credit crunch, and the European Central Bank is stepping up its purchases of PIIGS bonds. U.S. Treasury Secretary Timothy Geithner flew to Poland to speak at a meeting of euro zone finance ministers and central bankers and his message was very simple: If you don't get your act together you risk plunging the world into a "protracted" economic downturn.
Of course, the fact the U.S. is in such a mess doesn't help the situation or his credibility, a reality Mr. Geithner referred to when he described America's domestic politics as "terrible." That view was echoed by Christine Lagarde, the new head of the International Monetary Fund, in a speech in Washington. "The vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction," she said.
That stinging rebuke of world leaders evokes the spectre of the early 1930s when politicians vacillated over how to respond to the crash of 1929 and ended up enacting dreadful legislation such as the Smoot-Hawley Tariff Act of 1930. It set off a beggar-thy-neighbor chain reaction that had the effect of turning a bad situation into an economic disaster.
Unfortunately for all of us, we seem to be in a similar situation now. No one in power has a clue about how to get us out of the current mess. President Obama's much-touted jobs program in some ways repeats the errors of Smoot-Hawley with its "Buy America" provisions. What kind of message does that send, not only to Canada but to all U.S. trading partners?
As Ms. Lagarde bluntly points out, we're in a kind of death spiral and there is no pilot with the skills to pull us out of it. That's why I view stock market rallies such as the one we briefly enjoyed on Thursday as an aberration. I am also dubious about the OECD's latest pronouncement that a new recession is unlikely and, if it should happen, it won't be as bad as 2008-09. I hope this is not a matter of whistling past the graveyard, but I fear it is.
So my basic advice is unchanged: caution, caution, caution. To that I would add: Hope for a political miracle. It is still possible to get out of this situation with minimal damage but it will require some innovative and speedy action in both Washington and Europe. I doubt the will is there to make it happen.
