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Politics virtually guarantee that the global economy won't go into crisis in 2011. Politics make it extremely unlikely that the global economy will slow down as much as the market seems to fear. Politics, in fact, put a safety net under the global economy this year.

And politics also virtually guarantee another, deeper crisis in 2012 or 2013. I'd bet 2013.

How come? You see, just about every politician in the world is trying to kick an economic problem down the road into 2012 or 2013. I think they'll succeed in postponing the day of reckoning in 2011 using a combination of funny accounting, additional spending and subsidies. But the price for that postponement will be that problems will be bigger and harder to truly solve in 2012 or 2013 than they are now. And that will raise the odds that the global economy will face another serious crisis -- just five years or so after the last one.

This kick-it-down-the-road effort is most obvious in the eurozone, where the effort to put together a new rescue package for Greece really comes down to putting off a Greek default from 2012 to 2013 or 2014.

But the effect is also visible in the United States, where I think the most likely result of negotiations in the U.S. to raise the debt ceiling will be to kick the problem into the 2012 election campaign, with a "solution" postponed to 2013. You can also see it in China, where the leadership that takes over in 2012 and 2013 from President Hu Jintao will be extremely reluctant to rock the boat until it's firmly in power.

image: Jim Jubak

Jim Jubak

Altogether, this politics of delay means that in 2011 the global economy will get enough stimulus to keep growth at the relatively high levels that politicians need to keep voters reasonably happy. Politicians won't even think about making the tough choices that might inhibit growth until well into 2012.

Greece example is clear

You should be familiar with the politics of procrastination from my posts on the Greek debt crisis. The original rescue plan for Greece, cobbled together last year with funding from the European Union, the European Central Bank and the International Monetary Fund, turned out to be an all-too-hopeful effort to push the problem down the road into 2012. The thinking last year, when the rescue program was put together, was that if Greece could get enough cash from a European Union rescue program to get to 2012, the country would have enough time to get its house in order so it could start to finance its debt from private investors again.

That turns out to have been exceedingly optimistic (I'd call it just plain wrong). Greece has failed to quickly reform its dysfunctional system of tax collection; instead, the country has continued to collect less tax than it is owed (and less than it promised its rescuers it would collect). Meantime, budget cutting and asset sales -- while painful enough to elicit widespread protests in Greece -- haven't lived up to projections, either. Add in the effects of the all-too-predictable slowdown in the economy as a result of these measures, and Greece clearly won't be embraced by financial markets in 2012 and maybe not in 2013.

Efforts at a new package are held up now by fighting between the German government and the European Central Bank about whether bondholders should be required to extend the maturity of Greek bonds as part of any deal. But the real focus of the talks is on getting enough money from the European Union, the European Central Bank and the International Monetary Fund to support Greece until 2013 or 2014 when -- hope springs eternal -- Greece will be able to sell debt in the financial markets again.

The political imperatives driving this thinking are clear. The only alternative to this deal -- if it can be sold to voters in Germany and other northern European countries and assuming that it works -- is a painful re-examination and restructuring of the entire euro project. In the current political climate it's unlikely that voters in the northern or southern eurozone would approve a restructuring that actually dealt with the problems of running a single currency for economies as different as those of Germany and Greece. Kick the problem down the road and hope seems like a pretty good alternative to European politicians.

US and the debt-ceiling debate

The situation is totally different in the United States, but the result is remarkably similar. In the U.S., the presidential election looms in 2012, and the anemic recovery is the issue where the Obama administration is most vulnerable to Republican attack. The Republican opposition certainly doesn't want to strike any deal over the debt ceiling -- the U.S. will run out of room to borrow in August, according to the U.S. Treasury. That would remove the shocking state of U.S. finances from the minds of voters.

On the other hand, pragmatic Republicans don't want to force the United States into even a technical default on its debt in August and risk creating a crisis a year too early or getting blamed for any crisis. Democrats, for their part, would like a deal this year that doesn't preclude the chance that the economy will pick up speed and look better in June 2012 than it does now.

That's why, in my opinion, the most likely outcome isn't a crisis this year but some patchwork compromise that gives both sides potential ammunition for 2012 and pushes off the hard work on reducing the U.S. deficit into 2012 or into the post-election period.

That would mean odds are relatively low that negotiations in Washington will produce budget cuts large enough to make a difference in the deficit or turn the current anemic slowdown into a double-dip recession. It's more likely that U.S. fiscal policy will remain muddled, with the Federal Reserve able to hold growth at 2% -- or perhaps even better if the first-quarter slowdown was a result of temporary factors stemming from the Japanese earthquake and tsunami.

By 2013, no matter how the election goes, the Federal Reserve will be under almost unbearable pressure to reduce its balance sheet and raise interest rates. That's when global bond markets will really pressure the United States to come up with a plan -- at the least -- for reducing its budget deficit over the long term.