America’s aggressive strategy for tackling its financial and economic ills is working better than Europe’s go-slow approach -- and investors are taking notice.
Even amid the weakest recovery in modern history, the U.S. economy is outperforming the euro area and soon may break higher. More than a year after U.S. gross domestic product returned to its pre-crisis level, Europe still has to make up lost ground and is back in recession. While America’s unemployment, at 7.5 percent, is 2.5 percentage points higher than at the start of the recession, it’s below the 12.1 percent rate of the euro zone -- and the gap is the most since 2000. Manufacturing is shrinking in the 17-nation bloc; U.S production is expanding.
“The U.S. is in a transition from the intensive-care unit to out of the hospital,” said Mohamed El-Erian, the chief executive officer at Pacific Investment Management Co. in Newport Beach, California. “Europe is out of the ICU, but in a ward close by.”
The source of America’s relative economic success may lie in the decisions of policy makers. While the U.S. quickly addressed bank solvency, Europe battled over how to deal with its sovereign-debt turmoil and still is struggling to craft a comprehensive banking plan. The Federal Reserve eased monetary policy faster than the European Central Bank, and governments in Europe put their faith in austerity over the U.S. preference for fiscal stimulus.