http://www.economist.com/node/18836014?Story_ID=18836014&CFID=172453746&CFTOKEN=17611523Politicians playing poker
The current battle over raising the federal government’s debt ceiling is driven not by careful consideration of the economics but by ideology and brinkmanship. Democrats refuse to consider serious spending reform. Republicans reject higher taxes. Many tea-party types would rather see America’s government default than compromise on spending. The result is a perilous stand-off—and a growing danger that America will have to make drastic short-term spending cuts, or even find itself forced into a technical default.
A parallel dynamic is playing out in the euro zone, where the debate about how to deal with Greece’s debt crisis has descended into a high-stakes stand-off between Germany, which wants the maturities on Greek bonds to be extended, and the ECB, which resists any debt restructuring (see article). The hope is still that Europe’s leaders will come up with a face-saving compromise at their summit on June 23rd-24th. But the longer the confrontation continues, the greater the risk of an accident: a chaotic Greek default and exit from the euro.
This dangerous political brinkmanship could also have a damaging effect by creating uncertainty. Companies are currently sitting on piles of cash because they are wondering how strong economic growth will be. Politics gives them more reason to sit on their hands rather than investing and hiring immediately, providing a boost the world economy sorely needs.