The European debt crisis: Lessons for the United States

Thursday, December 8, 2011

Europeans are worried and not just about the current debt crisis but over the future of the European Union and its currency, the euro.

Headlines across Europe include ominous warnings about the potential collapse of their market for sovereign debt -- the money borrowed by countries to cover their budget deficits.

Like the United States, many European states have opted to borrow heavily to pay for ongoing expenses, leading to a critical debt burdens.

Greece and Italy, among other nations, have introduced austerity measures, reducing spending, in real terms, by 5, 10 or even 15 percent. And as of this week, European leaders are beginning to discuss balanced-budget laws to control their own spending habits.

How did this happen? How did the rich nations of the European Union, used as examples by American liberals as a way to have it all -- generous welfare, high living standards, free health insurance and education, and prosperous economies -- find themselves at risk of default?

Europe has been operating under a delusional system, designed primarily by Germany and France, but which temporarily benefited the entire EU.

The creation of the single European market and the euro in the 1990s was hailed as a miracle of economic integration, which would not only spread prosperity across Europe but would bind all Europeans together in a magical land of unity.

The conflicts, wars and ethnic strife would fade away, and the social, political and economic systems of the EU nations would converge, managed efficiently and fairly for the benefit of all by the European Commission in Brussels.

The understanding within the EU was that the richer nations would provide aid to the poorer so that the weak would be able to compete with the strong in a continentwide free market.

Unfortunately, both rich and poor nations confused the illusion of prosperity with actual increases in productivity and competitiveness among the less developed nations.

Greece, Spain, Ireland and Portugal borrowed heavily from the richer states, using this money to pay for more government employees (to enforce EU regulations), more welfare benefits (to comply with EU standards), and massive infrastructure projects -- allegedly to prepare their economies for competition, but in practice providing temporary jobs in construction and services.

German, French, Dutch and other banks profited greatly, as nations across Europe borrowed heavily, and low interest rates kept the money flowing.

The easy credit party is now over. Not just poor states, such as Greece, but richer ones, such as Italy, are facing much higher interest rates as investors begin to doubt their ability to repay loans.

With slow or declining economies, aging populations, generous welfare programs, unemployment averaging 10 percent across the EU, and as high as 21 percent in Spain, debt levels are now unmanageable.

What is the lesson for the United States? Our debt levels are already at the level of Greece; there is no Germany to bail us out, and President Obama has resisted real austerity measures -- even demanding more "stimulus."

Ironically, it may be that the Europeans provide a real and useful example for us. Over the last one to two years, conservative governments have taken over in most of Europe, with November elections in Spain being the most recent example.

Europeans are already attempting to overcome decades over overspending, as painful as it will be; for once, we should follow their example.

Wayne H. Bowen, professor and chairman of the Department of History at Southeast Missouri State University, is also a lieutenant colonel in the U.S. Army Reserve.

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