The Euro-American Debt Dilemma
The debt dilemmas in Europe and the US prove yet again that elected officials will ignore long-run costs to achieve short-run benefits, and will act only when forced. And that implies an extended period of episodic economic disruption and political upheaval far beyond this summer’s debates on America’s debt ceiling and Europe’s distressed sovereign debtors.
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PALO ALTO – Wealthy Europe and America, crown jewels of mixed capitalist democracies, are drowning in deficits and debt, owing to bloated welfare states that are now in place (Europe) or in the making (the United States). As Europe struggles to prevent financial contagion and America struggles to reduce its record deficits, their dangerous debt levels threaten future living standards and strain domestic and international political institutions. The ratings agencies are threatening additional downgrades; others envision an eventual breakup of the euro and/or demise of the dollar as the global reserve currency.