While the financial mess in the United States as well as in the eurozone has been analyzed to death by economic experts trying to deconstruct the decisions made by central bankers and finance ministers and the positive and negative response by the bond markets, it is important to understand that the American and European financial crises are political in their core.
In Europe, the move to launch a common currency in the 1990s was the outcome of a political decision by the German and French elites to accelerate European integration in the post-Cold War era without creating the necessary political institutions that would provide for a common European fiscal policy.
And the major dilemma facing the European Union (EU) today is in essence political - whether the prosperous, mostly Protestant and Nordic North, led by Germany, the Netherlands and Scandinavia, is willing to subsidize the less advanced (and more corrupt) economies that with the exception of Ireland are in southern Europe (Greece, Italy, Spain, Portugal).
Interestingly, the split between North and South is reflected in the political divisions within European countries such as Italy and Belgium. France, with its mixture of northern and southern characteristics, finds itself somewhere in the middle of this political debate, while Britain and some of ex-communist European governments are more sympathetic to the views of Germany and its northern allies.
Similarly, the debate in Washington and around the country over US fiscal policy reflects more than just the philosophical disagreements over economic policies that have received so much attention in the last two years. In a way, this economic debate has also exposed a deep political-cultural split that has all the making of a cold civil war.
On the one hand, you have the Republican electoral base that is located mostly in the Midwest and the South (and other mostly rural 'Red' areas) and consists of a large bloc of older, White and Christian voters whose intellectual roots tend to be conservative, traditional and nationalistic, with its emphasis on the original interpretation of the Constitution, on 'state rights' and a commitment to religious (Christian) values. These people fear the 'Muslim threat' that borders on xenophobia and nativism.
On the other hand, the Democratic electorate is concentrated in the east and west coasts and the large urban centers of the country and includes a coalition of educated professional, minorities and young voters whose members espouse a set liberal, secular, multi-ethnic and open political-cultural system that is more tolerant towards immigrants and more sensitive to the rights of gays and women.
If the Democratic-liberal coalition helped elect the first African-American president, the Republican-conservative bloc has given birth to the Tea Party whose obsessive resentment towards Barack Obama and his real and imaginary traits is well documented.
The political bottom line is this: The Tea Partiers believe that eroding the foundation of the American welfare state -- the proud creation of the Democratic-liberal president and Congress -- would be a devastating political blow to Obama and the 'coastal' elites that they associate with the 'secular liberals' they despise.
Some of the more centrist Republicans and libertarian thinkers express a genuine concern over rising budget deficit and some of the anti-business attitudes among the Democrats. But the current Republican leadership in Congress is driven first and foremost by political and ideological zealots that have no interest in reaching compromises over fiscal or other policy issues with the other side.
And that may be an unresolved political problem that, in turn, explains why it will be so difficult to form a bipartisan national consensus in Washington anytime soon.
So there is something mystifying about the one major element in the criticism in Washington of the recent Standard & Poor's decision on US debt -- that it was too "political," especially when that negative assessment is made by American, well, politicians.
Why exactly should S&P avoid making the judgment that policymaking in Washington has become "less stable, less effective and less predictable" -- a view that seems to be shared by many credible American political analysts -- especially when Republican Tea Partiers admit that they were willing to allow the US government to default on its debt obligations if President Barack Obama and the Democrats refused to raise the political white flag by agreeing to their demands?
It's the politics, Stupid! American and European political leaders will probably continue to muddle through for a while as they try avoid making the crucial political decisions: Should the EU continue to move toward creating political unity among its members and pay the costs involved in this process -- or should the EU be re-established as a free-trade zone under which the nation-state remains the central political player?
And should the United States start demolishing the existing welfare state while relegating more power to states, businesses, traditional institutions and families -- or should the main priority in Washington be the reform of the existing welfare state and its central centers of power as they evolve through the last century?
These are the kind of political decisions that European and American leaders are not able and/or are not willing to make.