Opinion: Europe and reelection fears could force lawmakers into debt action

As this session of Congress begins in this presidential election year, the conventional wisdom is that little will get done and that Congress will continue its devolution into partisan combat and dysfunction.

There are definite reasons to see this as the likely scenario.

First, if you are a liberal member of Congress, you are holding most of the cards, and to achieve your goals all you have to do is run out the calendar. Unless Congress intervenes, at the beginning of next year an automatic sequestration theoretically will occur that will cut $500 billion to $600 billion in defense spending over the next 10 years. And if Congress doesn’t act, also beginning next year, former President George W. Bush’s tax rates will lapse, which means a half trillion to $2 trillion in tax increases.

{mosads}These two events satisfy not only the basic goals of the liberal agenda but also let them argue they are addressing the debt and deficit. It is, if you are a liberal, a nice position to be in — you do nothing and you get what you want. It’s difficult to see why there would be a great deal of incentive for House Minority Leader Nancy Pelosi (D-Calif.) and her team to make a deal with these events looming.

Additionally, because of the debacle of last summer’s debt-ceiling fight and the minor but reinforcing debacle of the December payroll-tax-holiday fight, Congress, and especially the Republicans, have managed to put themselves into a position where it appears they cannot govern.

Any good will that might have existed coming out of the 2010 election about giving Republicans control of the House has been kicked away by these actions. There is therefore no popular pressure for a Tea Party agenda and, in fact, the only significant strain of popular thought is that Congress has become a pox on America.

Thus, the idea that a conservative fiscal agenda can be offered by the Republicans and pushed through Congress to mute the autopilot effects of massive defense cuts or massive tax increases by the end of the year is not a viable strategy. All that certainly does seem to support for the conventional wisdom that Congress will do little in this new session.

There are, however, two counterweights to this scenario that might change the dynamic and actually create an opportunity for constructive bipartisan action.

The first is Europe. Italy is on the brink of a financial meltdown and must refinance approximately $40 billion of its debt in February. That is a huge number and it is unclear who will buy it or whether the European Central Bank can stabilize the rollover. This is a “tip of the iceberg” event, and the debt restructuring that must still occur beyond the Italian problem is huge. No clear path other than very limited Band-Aid actions has yet to be proposed, much less agreed upon.

Europe continues to tip toe along the precipice of a massive economic meltdown or, at minimum, a dramatic economic adjustment that will lead to a significant contraction. This will most likely be represented by a liquidity problem and, unfortunately, it is difficult to believe such a big problem will not substantively affect our economy and financial system.

When Europe goes into the hot soup we will inevitably join them in at least the warm gruel. But Congress will have to act to address it, and that means it will have to pull itself together, because running on autopilot will not get us through this storm.

Second, the seminal act for all members of Congress is reelection. If it keeps up its present course of debilitating partisanship and dysfunction, all incumbents — even those from relatively safe districts — will find reelection a challenge.

The American people are genuinely disgusted with Congress and the Obama administration’s failure to take on the issue of jobs, deficits and the debt in a constructive way that can be pointed to as progress.

They recognize that the only way these complex issues can be addressed properly and seriously is to have Congress govern. In a divided government, the only way to govern is through bipartisan agreement. 

At some point, the natural forces of self-preservation should kick in, and responsible members on both sides of the aisle will realize that they need to act, if only to save their own seats, and that such action can only succeed through agreement among themselves. It flies in the face of conventional wisdom, but it really is a possibility.

Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and as ranking member of the Senate Appropriations subcommittee on Foreign Operations. He also is an international adviser to Goldman Sachs.