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 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 unemployment rate. France has a 10 percent unemployment rate. Greece — which is obviously very small — has a 21 percent unemployment rate.
If you live in Nevada, which has a 12.3 percent unemployment rate, you live in a state that’s 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 how normal life currently is for most Europeans, and how bad life is right now for many Americans.
What separates Europe from America isn’t so much the economic pain of the average European as this chart:
That’s the European crisis. As recently as 2006, every country in the euro zone could fund itself on the bond market. Today, Greece pretty much can’t fund itself, and Ireland, Portugal, Spain and Italy are facing challenges, to say the least.
But notice the rapidity of the change. That’s a sharp break. Usually, if you saw something like that on a chart, you would think there was something wrong with the data. And, indeed, there was. 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 we’ve 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 only been around 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.