Bloomberg
May 3, 2012
Europe is a mess. But it’s a peculiar mess that both the left and the right think validates everything they’ve been saying about what we should -- and shouldn’t -- do here in the U.S.
“The right argues we have to cut deficits now or we’ll be like Greece,” says Tom Gallagher, a principal at the Scowcroft Group. “The left argues we can’t cut deficits now or we’ll be like Europe.”
So, who’s right? Well, which entity do you think is more comparable to the U.S.? 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. 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 also 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.
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