Everybody seems to be extremely concerned about AIG
defaulting on it's obligations. Especially to institutions in
Europe and elsewhere. But according to Paul Krugman,
Europe itself seems less disturbed about them or its
own economic condition.

The clear and present danger to Europe
right now comes from a different
direction - the continent's failure to
respond effectively to the financial
crisis.

Europe has fallen short in terms of both
fiscal and monetary policy: it's facing
at least as severe a slump as the United
States, yet it's doing far less to combat
the downturn.

On the fiscal side, the comparison with
the United States is striking. Many
economists, myself included, have argued
that the Obama administration's stimulus
plan is too small, given the depth of the
crisis. But America's actions dwarf
anything the Europeans are doing.

The difference in monetary policy is
equally striking. The European Central
Bank has been far less proactive than the
Federal Reserve; it has been slow to cut
interest rates (it actually raised rates
last July), and it has shied away from
any strong measures to unfreeze credit
markets.

Or are they simply counting on our largesse towards AIG and
others to help bail them out. Point being, if Germany, Italy, the UK
and the rest are indifferent then why should we be concerned about
these companies financial health or continued existence.


C