Market unrest shows depth of U.S. and European divide

WASHINGTON/PARIS (Reuters) - The answer to the pressing question of how to manage the global financial crisis might depend on which side of the Atlantic you are on.

A gut-wrenching slide on global financial markets this week once again exposed centuries-old divisions between European and U.S. philosophies when it comes to coping with economic crises.

European officials have taken a more patient approach so far, resisting mounting pressure to follow the U.S. Federal Reserve's aggressive lead in trying to revive the sagging economy.

In part, it reflects different economic realities of the two regions. But it also points to strong cultural differences: In the United States, there is a sense of limitless economic possibilities. In Europe, there is a stronger belief in the recurring cycle of bigger events outside anyone's control.

"Americans tend to be more optimistic...Everybody's got the American dream," said Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government. "Europeans are more fatalistic."

While the U.S. Fed made the biggest rate cut on record, the European Central Bank stood pat.

As the tighter credit conditions curbed spending in both regions, the Fed responded with an emergency interest rate cut on Tuesday, its deepest in more than two decades. The ECB still insists that euro zone growth will remain near potential, and inflation poses the greatest risk to the economy.

Fed critics contend that the U.S. central bank is blissfully ignoring the risk that its rate cuts will reward Wall Street for lax lending, and inevitably inflate another asset bubble that will some day burst.

Meanwhile, the ECB faces a growing chorus of economists who worry that it is standing idly by while the region slips into a dangerous downturn of its own.

HISTORY REPEATS

In part, the rift reflects the two regions' economic histories. Americans' lingering fear is another Great Depression in which no on can borrow money or get a job. Europeans -- Germans in particular -- remember the hyperinflation that ushered in the Nazi takeover.

Americans interviewed by Reuters this week remained optimistic that any recession would be brief, and stock markets would surely resume their upward march despite day after day of triple-digit drops.

In Europe, debating whether the nation is in decline is a media sport in large mainland economies such as France and Italy. The word "declinologist" has become common currency.

"When the pilgrim fathers boarded the Mayflower, they took optimism with them," quipped Gilles Moec, a French-born economist who works in London for Bank of America.

On another level, it shows the resilience and the importance of the consumer in the American economy. A byproduct of the American optimism is a willingness to spend in the teeth of the most daunting circumstances. Consumer spending has kept climbing for nearly two decades, through the Iraq war, September 11 attacks and the technology bubble.

The housing meltdown has been the biggest test in the long-running expansion, and consumer spending slowed to a point of no growth last month. That is a source of growing concern from Wall Street to Main Street to the U.S. Capitol.

"My own view is that we're already in a consumer recession," Coach's chief executive, Lew Frankfort, told Reuters. "It may not be indicated overall within the GDP, but consumers are behaving as if we're in a recession."

Faced with the possibility of a similar slowdown, European officials have restated their long-standing concerns that inflation will race ahead if too much is done to stimulate the economy.

To be sure, Europe responded quickly last year when the U.S. subprime payment failures were threatening the stability of the banking system. The Bank of England and European Central bank poured billions of dollars into the money markets to bail out the system.

GLASS HALF FULL

Still, the long-term attitude in the United States remains optimistic, and U.S. monetary policy has been supportive.

"We've had a long period of doing very nicely. We had a deep recession early in the 1980s and only a couple of shallow recessions since then. There has developed a feeling that that's the norm," said Henry Aaron, senior fellow at the Brookings Institution in Washington.

In Europe, it is a decidedly different story.

Germans look notably less bullish as a matter of course than their American counterparts, even over the past two years when Europe's largest economy took off.

TNS, an opinion polling group, sounded out 1,000 Germans in December to discover more than 80 percent believed they has not benefited from economic upturn.

Many analysts attribute that at least partly to a series of painful economic reforms in recent years which have reduced the extent to which the state covers healthcare costs or curtailed unemployment benefit.

In Western Europe's big mainland economies, the tradition of the welfare state is also stronger and people perhaps have the feeling too that globalization, in their case, amounts to a "race to the bottom" for wages and living standards.

Nielsen, a media and marketing consultancy, surveyed 26,000 people in 48 countries last October-November via the Internet.

"Of all global regions, North America still remained the most optimistic ... while Europe again remained the world's least confident region for economic growth and consumer confidence," Nielsen said.

(Additional reporting by Martinne Geller in New York)

(Editing by Richard Satran)