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Both EU and U.S. Have Debt Crises But Their Economic Outlooks Differ (7/28)     Print Email

Rhetoric about the debt threats sounds similar on both sides of the Atlantic, focusing on political leaders’ apparent inability to cope with the crises. In fact, the resemblances and comparisons are superficial, argues prominent economist Simon Johnson in a trenchant article entitled: “Who Is In Worse Shape – The United States or Europe?”

“The eurozone still faces an immediate crisis … [whereas] the United States, on the other hand, is in much better shape over the next decade,” he says.

According to Johnson, a former chief economist at the International Monetary Fund, America’s real economic problems loom beyond the 2021 horizon. So the U.S. has time to address these vulnerabilities – even though it is not doing so now.

Europe’s problems, in contrast, stem from the lack of effective governance within the eurozone, and major disruptions are continuing. In the ongoing fiscal emergency, European leaders must make a choice now: either the eurozone countries impose radical changes in fiscal integration, including debt restructuring on some countries, or else the bail-outs will have to be continued with inflationary consequences for the German-led eurozone.

These threats could be eased if Europe experiences a “growth miracle,” but the outlook for near-term growth is poor.

For a very different perspective on this question of the relative economic situations of the U.S. and EU, see a piece by renowned economist Paul Krugman. He writes that “as many people have noticed, America now has European levels of joblessness without a European safety net.” The widespread American perception that Europe is mired in the past is out of date, he says: America now is “definitely leading in the misery race.”

 

        -- By European Affairs