Jeremy Hobson: The number of Americans applying for unemployment benefits fell last week. It’s now at 357,000. That’s a four year low and it’s more good news ahead of tomorrow’s March Jobs Report from the Labor Department. If it shows more than 200,000 jobs added last month, we’d be in the best four months of job growth since 1999. But there are some economic headwinds blowing strong right now. And one of them is coming from Spain where a disappointing bond auction yesterday sent government borrowing costs to a 5 month high and renewed fears about the European Debt Crisis.
Diane Swonk is chief economist with Mesirow Financial. She’s with us live as always from Chicago as always. Good morning.
Diane Swonk: Good morning.
Hobson: I read in the Wall Street Journal this morning that an analyst in Europe said “the medicine is wearing off in Europe.” Do you agree with that?
Swonk: Well what we’ve seen is the central bank of Europe, the European Central Bank, has bought the region some time to cure some of the problems that ail it and unfortunately, the Europeans haven’t used that time as wisely as the Central Bank would have liked.
Hobson: What do you mean? What should the Europeans have done with that time?
Swonk: The clear issue in Spain is, they had to go back and make deep cuts again. They’re facing their second recession because of austerity moves in three years but more fundamentally it’s at the core of Europe. France has done nothing and is moving in the other direction, one of the largest economies in Europe away from deficit reduction, away from dealing with their debt problems, and sort of in denial and trying to enact policies that are more reminiscent of the early and socialist 1980s than policies that would be applicable today.
Hobson: And I saw that French borrowing costs went up yesterday too. You were just in France since last we talked last week. Do people there have the same view that you do, that things really needs to be done or do they not feel that way?
Swonk: Well certainly economists do and in fact my economist friends were quick to point out and literally hand me this magazine that has an article saying France in denial. And the politicians, they have an election April 16th, both Sarkozy and Hollande who are running against each other are making promises of additional spending and thinking of things as high as a 75 percent tax rate — boy that would send shivers down the spine of anyone in the United States and certainly not cure the problems that ail France. It’s hard to think of anyone working at those kinds of tax rates.
Hobson: What’s the U.S. risk of all this at this point?
Swonk: Our risk is more minimized than it once was because of course, our banks are in better shape. Tim Geithner may have pointed that out yesterday, we recapitalized our banks and so we don’t have the same risk in our banking industry that we may have in 2008. We are exposed still somewhat through money market funds, that was a major problem in 2008 and let’s face it, when a country as big as France stumbles, we know the ripple effects are felt throughout the rest world and there’s a lot of landmines still out there in this war we’re fighting.
Hobson: Diane, chief economist with Mesirow Financial. Thanks as always.
Swonk: Thank you.
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