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Lessons from Europe’s Debt Crisis for the United States

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Lessons from Europe’s Debt Crisis for the United States

Cato Institute,

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Europe’s sovereign debt crisis holds important lessons that the United States ignores at its peril.

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Editorial Rating

6

Qualities

  • Controversial
  • Eye Opening
  • Overview

Recommendation

The United States is sleepwalking toward a fiscal precipice, lulled into complacency by historically low interest rates, says Desmond Lachman, a resident fellow at the American Enterprise Institute. His conservative-leaning article states that, unless it changes its trajectory, the US is on course to follow in the footsteps of Europe’s peripheral states. Although always politically neutral, getAbstract applauds this reminder that the US needs to acknowledge some uncomfortable facts now, before it’s too late.

Summary

The United States is blithely repeating the same mistakes Europe made in the run-up to its sovereign debt debacle. While Europe is struggling with a combined budget deficit of about 3% of GDP and a gross public debt ratio of around 90% of GDP, the US has a whopping 8% budget deficit and a gross public debt ratio of at least 105%. The US is teetering on the edge of a fiscal abyss and needs to learn from Europe’s missteps.

Foremost among Europe’s errors was anemic policy enforcement that allowed European Union member states to incur unsustainable deficits. The 1992 Maastricht Treaty imposed a ceiling on budget deficits of 3% ...

About the Author

Desmond Lachman is a resident fellow at the American Enterprise Institute.

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