Here are a chart and a graph showing the PIIGS' and the United
States' indebtedness -- more specifically, their public debt and 2009
deficit relative to GDP.
Just glancing at the chart, and
remembering that the PIIGS are among the weakest economies in Europe,
it seems that the United States isn't in great shape either. It's just
on par with Spain, whose economy is struggling.
But
the United States has a number of advantages that make its debt and
deficit picture brighter. In the future, Washington might answer to
Beijing when it comes to its
debt addiction. But for now, it determines its own fiscal and monetary
policy measures. Not so for the euro-using PIIGS. Washington can slash
its interest rate to zero, devalue the dollar, and perform quantitative
easing -- none of which the PIIGS can do. Plus, Washington has much
lower debt costs; much of the country's debt is basically free, due to
the dollar's status as the world's reserve currency.
In contrast, countries like Spain and Greece are mostly at the mercy of their partners in the Eurozone. At The Guardian, economist Claus Vistesen notes
that there is no "systemic set-up," no playbook, for what the Eurozone
should do to prevent or counter the default of one of its members.
The European Central Bank can't bail Greece out, per Europe's own rules
-- the Maastricht treaty says that "the Community should not be
liable for or assume the commitments of central governments, regional,
local or other public authorities of another member state." Simon
Johnson argues
that the IMF might be the obvious player to step in, but throws cold
water on the idea -- would it have enough money to bail all of the
flailing PIIGS out? Would it provide the same sweetheart deals it did
to Eastern European countries? Where would that leave the Eurozone?
I'm a bit more bullish on the prospect of the IMF stepping in with an
emergency deal. But I think it is more likely the strongest of the big
European economies, led by Germany, will eventually come around to
coming together along with other partners to write a check and keep
Greece afloat.
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