Huffington Post: Global Economic Crisis Likely To Have Profound Consequences For US Politics, World Relations

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Global Economic Crisis Likely To Have Profound Consequences For US Politics, World Relations

In the United States, economic developments have the potential to lay the groundwork for a political transformation with major alterations in both the composition of, and balance of power between, the major political parties. There are "reasons for thinking that the American election of 2008 may be the equivalent of the election of 1932 - an electoral sea change ushering in a new wave of government intervention and, if that intervention is successful, a durable electoral realignment," says Peter Hall, Krupp Foundation Professor of European Studies at Harvard, in a wide-ranging analysis he provided to the Huffington Post.

In Europe, Hall contends, "the political effects are likely to be more diffuse. If the ensuing recession is not too deep, the current crisis may provide Prime Minister Gordon Brown with just enough credit for the Labour party to survive the next British election and Angela Merkel with the wherewithal to remain German Chancellor. But history suggests that electorates tend to punish governments that preside over deep recessions and to look, in some cases, to the political extremes for new faces and voices. Therefore, there is reason to worry about the rise of far right parties in Europe, in particular, where they have already made inroads by running against the market-oriented policies of the European Union. Although enthusiasm for market competition has been waning in European capitals for some years, the current financial crisis will strike it a serious and potentially fatal blow," according to Hall.

"Most Europeans and some Americans attribute the crisis to subprime lending in the US housing market, but that was only the trigger for contemporary events," Hall argues. "The deeper roots of the crisis lie in shifts in banking practices that led many financial institutions to borrow heavily in short-term capital markets to finance the purchase of riskier securities than they once held. The 'financial innovation' behind the development of these securities was said to diffuse risk. Indeed, it did and now everyone is at risk.