Why America won’t go the way of Europe
By Ezra Klein,
I’m always surprised, in my conversations with conservatives, how often they distill the deficit down to a simple question: Do you really want the United States to go the way of Europe?
Interestingly, I’m now hearing it from liberals, too. Robert Borosage, director of the Campaign for America’s Future, warns, “Take a good look at Europe — bloody riots in Athens and Madrid, rising unemployment, spreading poverty and suicide, and a deepening recession — because the current American elite consensus bizarrely wants to drive America down that same path.”
The conservative argument is that unchecked deficits could lead to a bond-market crisis, much as they have in Greece. The liberal argument is that austerity could lead to riots, as it has in Greece. Both arguments, I think, miss just how much trouble Europe is in— and how much better shape we’re in.
But first, it’s worth saying that “Europe” looks very different depending on where you live. Across the continent, unemployment is 10.1 percent. But Germany has a 5.7 percent unemployment rate. Britain has an 8.3 percent rate. In France, it’s 10 percent. Greece — which is very small — has a 21 percent unemployment rate.
If you live in Nevada, which has a 12.3 percent unemployment rate, your state is worse off than most of Europe. If you live in Virginia, which has a 5.7 percent unemployment rate, you live in a state that’s better off than most of Europe. So in terms of the labor market, quite a few Americans already live in Europe, or worse. These debates often miss what life is like for most Europeans and how bad life is right now for many Americans.
What separates Europe from America isn’t the economic pain of the average European. It’s the fact that investors aren’t confident the euro zone will exist in 10 years.
As recently as 2006, every country in the euro zone could fund itself on the bond market, and for cheap. Greece was paying the same rates as Germany. That is to say, the market thought Greece was as safe a bet as Germany.
Today, Greece pretty much can’t fund itself, and Ireland, Portugal, Spain and Italy are facing challenges, to say the least. Germany, however, can fund itself just fine. The market is now pricing the euro-zone countries individually rather than collectively.
And that’s the key: The market has lost faith in the euro zone as a single entity. Investors had previously thought that the European Central Bank and the richer countries in the euro zone would, if push came to shove, cover the debts of the poorer countries. They thought the euro zone was a sure thing.
They thought wrong and have now come to see the underlying structure — a currency union without a fiscal union, a committed central bank or economic parity among the members — as inherently flawed and perhaps unsalvageable. The euro zone doesn’t have a debt problem. It has a continued-survival problem.
America’s got a debt problem. But it’s been around for hundreds of years. Our political system, for all its inanities and disappointments, is fairly well understood and quite widely trusted. The euro zone has been around only since 1999, and Greece didn’t join until 2001. There’s nothing obvious that could force a rethinking of America as a continuing, surviving enterprise in the way that we’ve seen in Europe.
The closest thing is Congress defaulting on the debt, but even that would be seen as a sort of temporary insanity — albeit one with long-term consequences for our borrowing costs — rather than evidence that the republic itself was a bad idea and might come apart.
For previous Ezra Klein columns, go to postbusiness.com.