September 25th, 2011
10:49 AM ET

Fareed's Take: Governments doing almost nothing to fix debt crisis

By Fareed Zakaria, CNN

This was U.N. week and there was some drama over the issue of the Palestinian bid for statehood. But the real action is taking place now - as the world's finance ministers and leaders meet to talk about money.

I think it's fair to say that we are confronting the worst economic moment since the days after the collapse of Lehman Brothers in 2008. Growth has slowed in Europe and the United States - and is slower even in the bubbling emerging markets. Some European countries now have problems with their debt burdens that appear unmanageable and that problem is spreading to major European countries like Italy.

Europe's banks have too little capital and too much bad debt on their books; they are poised for a Lehman-like event. And here's the worst part, in light of these problems, key governments are doing - almost nothing.

The real culprits here are the leaders of Europe. They have kicked the can down the road for two years. They now have got to face the fact that the euro was badly created - mixing together economies of very different characters - and fix it.

That could mean a smaller, stronger eurozone (which is to say, letting a country like Greece exit). Or figuring out a way to let Greece default and shore up Italy and Spain. I've argued that the best solution would be to have the IMF get money from countries like China and use it to structure a long-term reform program for Italy and Spain. There are other ideas - like euro bonds, which would allow countries like Greece to borrow at German-subsidized rates. But Europe's leaders need to do something to deal with these problems.

In the United States, we talk a great deal about the jobs issue but who's doing much about it? President Obama's jobs plan, which is pretty good, is going nowhere in Congress. (And he hasn't helped matters by presenting a gimmicky and inadequate plan to fund that program). The market keeps telling us by the ever-falling interest rate that it fears another recession, not inflation.

Everywhere leaders all seem to assume that if they just keep things steady, something will miraculously happen to solve the problems and jumpstart growth. It won't.  The problems are actually getting worse and by sticking their heads in the sand, leaders are only deepening the inevitable crisis.

For more of my thoughts throughout the week, I invite you to follow me on Facebook and Twitter and to visit the Global Public Square every day. Also, for more of my takes, click here.

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Topics: Economy • Europe • Fareed's Take • United States

soundoff (138 Responses)
  1. Wild Willy

    What, Zak has woken up, but still can't see through his socialist glasses. Very simple, how can you address the crisis level debt when you have a spendaholic socialist in the white house. Obama's running for re-election and will be handing out money for any vote he can get.

    September 26, 2011 at 9:06 am | Reply
  2. Willie 12345

    As someone on the Obama payroll, Freed needs to place a disclaimer before every article he writes. CNN should also as him to consider employment elsewhere. Yellow journalism at it worst.

    September 26, 2011 at 9:10 am | Reply
    • sgurdog

      Don't you have to suckle Rush's teet or something?

      September 26, 2011 at 11:26 am | Reply
  3. maybeajoke

    It is awesome to be a president.

    September 26, 2011 at 9:23 am | Reply
  4. hillary

    How did you get your job here at CNN Fareed? You are consistantly one of the most biased, un-American, western-hate monger on staff. Is this why you were hired?

    September 26, 2011 at 9:24 am | Reply
    • sgurdog

      Aww shut up with your patriotic chirping! Fareed is from Mumbai India, not Muncie Indiana. He holds a worldview not one encased by a soundproof bubble. His astute opinions should be listened to not edited by the patriot police.

      September 26, 2011 at 11:25 am | Reply
  5. Mark

    @gop1787

    It seems idiotic because it goes against everything you have been taught to believe. This is the reality. Federal Deficits – Net Imports = Net Private Savings. The fed government does not need outside sources of income, it can spend reserves into existence. I would suggest doing some actual research, but please understand 99% of the people out there are confused about this and will only provide bad info. The other nations you speak of spending beyond its means are monetarily non-sovereign nations who are unable to create its own currencies.

    September 26, 2011 at 6:34 pm | Reply
  6. Louise

    The Europeans will use the current crisis to sort out the Euro so that in the long term they will be economically strong. In the mean time, while they sort it all out, they will act like an anchor dragging the US economy down with them. The US created the bubble that caused the GFC so now the US will have to put up with the pain involved in sorting everything out. The Europeans are not interested in a bandade solution. The world needs financial regulations that make the financial markets and currencies more stable and this is the goal of the EU and China. The USA wants to create another bubble to fund it wars, but no one is interested in doing this.

    September 27, 2011 at 3:07 am | Reply
  7. Eugene

    Fareed, with all due respect this is a crisis that cannot be solved by politicians or by borrowing money from China.
    First of all this crisis is not only an economic crisis. It is more than that. The whole system from education, health care, to inovation and research is in crisis. There are no new ideas. Its like the humand kind hit a wall.

    Coming back to borrowing money from China. China cannot and will not imitate US in helping Europe. There are diferences in values, culture, everything. And then it's not even fair to say to them give us money so we can pay for your products. What I think needs to be done is a more profund reform. A reform that will change our way of thinking, that will change our values and our priorities. If we will consider our civilisation, and the economy as part of it, a computer we really need to format this metaforical computer and come up with a new, updated, improved operating system.

    September 28, 2011 at 12:02 am | Reply
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