Domestic production in the eurozone countries fell into negative territory last month. | REUTERS EU cuts could be red flag for U.S.

Europe is falling toward recession again, setting off roiling political turmoil across the continent. And that foretells serious political and economic troubles for the United States – though not for the reasons most people expect.

Domestic production in the Eurozone countries fell into negative territory last month, for the first time since the economic crisis of 2009 — though it did eke out 0.2 percent in growth for the entire third quarter, Eurostat, Europes’s statistics agency, said Tuesday. Still, the European Commission now predicts that Europe’s economy will “stagnate until well into 2012,” leading to the possibility of “a deep and prolonged recession.” One strong reason for this, economists say, is the bitter, budget-cutting austerity programs several countries have imposed to tame their massive deficits.


In Washington at the same time, growing numbers of legislators and political candidates are calling for ever-deeper budget cuts. Early this month,100 members of the House, Democrats and Republicans, called on the budget supercommittee to “go big” and cut $4 trillion over 10 years instead of a mere $1.2 trillion.

That, several economists said in interviews, would ignore the lessons Europe is broadcasting at full pitch and potentially run the American economy into the ground.

“To engage in austerity right now would be a great mistake,” insisted Desmond Lachman, an economist with the conservative American Enterprise Institute. “It would push the economy into a great recession.”

As the campaign season begins in earnest, the economy is by far the largest issue. Republican presidential candidates are barely mentioning the wars in Iraq and Afghanistan, the Arab Spring, growing competition from China or the EU debt crisis. Spurred in part by the tea party’s constant refrain to “end reckless spending,” members of Congress are trying to outshout one another with proclamations of fiscal responsibility, which to them means ever-larger budget cuts — heedless, it seems, of Europe’s present-day experiences and what they tell us about what would likely happen here.

“We need to learn from the European recessions,” said David Walker, former comptroller general of the United States, “and structure our own program” accordingly. He, too, said he considers large, near-term budget cuts potentially disastrous. Walker and other experts said significant budget cuts are certainly necessary — eventually. But not now. After all, people often forget how government funds are spent.

“This money doesn’t come from outer space,” Jon Markman noted sarcastically. He runs an investment-research firm in Seattle. In fact, the $1.2 trillion the supercommittee is trying to cut right now is being used to pay actual people to provide real goods and services — or to provide benefits for people who spend the money on goods and services. So the more money governments cut from their budgets, the more people lose their jobs.

In Spain, deep government austerity cuts have driven the nation’s unemployment rate to 21.5 percent. Teachers, for example, are protesting large-scale layoffs, and the Spanish government reports that 559,900 families now have no income at all. And yet, in the United States, political candidates, particularly Republicans, are trying to outdo each other with ever-larger proposed austerity plans. During last weekend’s Republican debate, Mitt Romney said he would lay off “at least 10 percent” of all federal employees. That would leave 200,000 people unemployed.

“Austerity brings a cyclical contraction,” said Thomas Kleine-Brockhoff, a German who is senior director for strategy at the German Marshall Fund in Washington. “You can’t just slash. You also have to invest and reform.” In his view, U.S. politicians don’t seem to appreciate this because they hold “a dangerous philosophy of American exceptionalism, as if they were exempt from the rules of finance.”

Walker echoed that, saying, “We are the world’s largest economy, but we are not exempt.”

As Kleine-Brockhoff pointed out, when people lose their jobs, income tax revenues decline and unemployment and other government-benefit payments increase. Markman calls that “the cascading effect — less hiring, and the reduction of purchases of U.S. goods and services.”

Late last month, the House Subcommittee on International Monetary Policy and Trade held a hearing on the Eurozone Crisis and Implications for the U.S., during which Peter Rashish, a vice president of the U.S. Chamber of Commerce, testified, “without economic growth, no amount of budgetary austerity” will provide “a long-term solution to Europe’s economic woes.” In an interview later, he added: “The point is that austerity alone is not going to produce growth.”

Lachman also testified, and his view was even more direct. Referring to Greece, he said, “simply engaging in savage fiscal austerity, they’re going to drive that economy totally into the ground.”

In recent days, Greece cut government pensions by 20 percent and told 30,000 government workers they will soon lose their jobs. The government plans to lay off an additional 150,000 people over the next few years. Already this year, Greece’s gross domestic product has retracted 5.5 percent, and about 17 percent of Greeks are unemployed.

But subcommittee chairman Gary Miller (R-Calif.) did not appear to draw any lessons from that testimony. In a news release a few days after his hearing, he said he “firmly believes that to get our economy back on track, the federal government must learn to live within its means.” In September, he voted against allowing the government to borrow $500 million for hurricane disaster relief, part of a larger emergency-management appropriation, saying “we need to cut up the government’s credit card.”

Miller declined to be interviewed. But for him and others calling for large-scale budget cuts, the evidence from Europe ought to be both compelling and frightening.

In Portugal, for example, the government recently announced it will eliminate lucrative end-of-year bonus payments for government employees — an amount taken from the economy “equivalent to cutting 100,000 public-sector jobs,” Finance Minister Vitor Gaspar said. Those and other austerity measures, the government acknowledged, will cause Portugal’s economy to shrink at least 5 percent in the coming year.

Last month, Moody’s Investors Service downgraded Italy’s sovereign-debt rating, saying the country’s “dismal growth outlook for the second half of 2011 and 2012” results in large part from “the impact of tougher austerity measures.”

The French economy has stalled, showing no growth in the most recent quarter. Last week, the government announced a second “austerity package” that includes tax increases and federal budget cuts of $1.6 billion. President Nicolas Sarkozy warned that as a result, the nation’s GDP would fall by almost 1 percentage point (the sort of admission American politicians are generally loath to offer).

Also Sprach Analyst, a global financial analysis firm, advised that “the slower the growth, the harder the European debt crisis will be to resolve,” and “government austerity is actually making matters worse.” Markman, the Seattle investment adviser, said “austerity budgets enforced by Republicans in Congress will create fiscal drag that could take 1 percent off the GDP all by itself.”

The United States, of course, has its own serious debt problems, though not as severe as those in several European nations. The financial analysts who decried Republican plans for draconian budget cuts acknowledge that cuts must come eventually.

Austerity plans “add insult to injury,” said Robbert van Batenburg, head of equity research for Louis Capital Markets. No one else is spending right now, he added, so for the time being the government must continue spending to keep the economy going. Budget cuts should come later, and “if these deficit cuts are made over a long period of time, I hope we will not fall back into another recession.”

Walker said, “We have to deal with the structural-deficit issue gradually, over the long term.” And Lachman of AEI said, “Give the economy some real support now.” As for the federal deficits, “America is really playing with fire by having its budget out of control. You need to commit now to do something that happens later — not in 2012, but over a decade.”

In a recent news release, teaparty.org, paradoxically seemed to agree — though obviously the authors had another thought in mind — when they wrote: “If we continue along this path, America will become the next Greece — on the verge of default and no prospect of economic growth.”

Joel Brinkley is a professor of journalism at Stanford University. He came to Stanford after a 23-year career with The New York Times, in which he served as a reporter, editor and Pulitzer Prize-winning foreign correspondent.