So, who’s right? Well, which entity do you think is more comparable to the United States? Greece? Europe? Neither?
I come down somewhere between “Europe” and “neither,” but it’s worth going through each contestant in turn.
Greece is a country of 11 million people. Geographically, it’s about the size of Louisiana. It doesn’t control its own currency, and its government spent years lying about its fiscal condition. After it joined the euro area in 2001, Greece went from paying about 7 percent interest on a 10-year bond to a bit more than 3 percent because investors assumed that its debt was backed by Germany and the European Central Bank. This encouraged profligacy (which led to the dishonesty) in Athens.
The assumption turned out to be wrong. When investors figured that out, they turned on Greece. Hard. With easy money no longer masking its problems, Greece’s economy was exposed for the mess it is. The World Economic Forum ranks it as the 90th most competitive country in the world, between Lebanon and El Salvador.
The United States, by contrast, is a country of 313 million. It controls its own currency, which is also the global reserve currency. The U.S. Treasury bond is the safest of safe assets. Even after a lengthy financial crisis, the World Economic Forum ranks the United States as the fifth most competitive economy in the world, and it’s bigger than the first four combined. Whatever the United States is, it’s not Greece.
Euro area’s flaws
So perhaps it’s Europe? Or at least the euro area? After all, the euro area is also big and controls its own currency. Likewise, the euro area was once considered a safe bet.
But the euro area is also a fledgling institution facing an existential crisis. No one knows whether it will be around in its current form in 10 more years — or even 10 more months. Its central bank seems more committed to forcing member countries to cut their deficits and reform their labor markets than to preserving the currency union itself.
The crisis has also exposed deep flaws in the basic structure of the alliance. The member countries increasingly despise and mistrust one another. Critical players in the drama — France and Greece — are on the verge of electing new governments that promise to radically renegotiate the terms of euro-area compacts. Meanwhile, Germany and the European Central Bank seem determined to impose a moralistic, debt-focused narrative on a crisis that’s better understood as a problem of capital flows and growth.
The United States has its problems. Although we can borrow for next to nothing and unemployment remains above 8 percent, U.S. leaders often seem more focused on debt than growth. The political system is increasingly gridlocked and dysfunctional. One of our two major parties is engulfed in a civil war driven by an insurgency that wants to radically redefine government functions, preferring, for instance, to default on the national debt rather than increase tax revenue or borrow more.