Debt, Everywhere

After the extreme tension of the past few weeks over the debt crisis in the eurozone, the spotlight this weekend was thrown suddenly onto the American situation. Eight days from Aug. 2 and critical default, one Barack Obama, extremely annoyed (something which is rare), banged his fist on the table in order to make the Republicans face up to their responsibilities and avoid allowing the world’s number one economic power to default on partial payment of her debt expenditure. The White House, which urgently convened for a new meeting yesterday — yet to be held at the time of writing — was hoping for an agreement before the opening of Asian markets Monday morning.

John Boehner, the Republican Speaker of the House of Representatives, guaranteed that this was also his intention — and not just to raise the debt ceiling by $14.3 trillion. Nothing remained certain however, and it is impossible to escape the idea that this meeting would come to nothing. If everyone in the United States and elsewhere recognizes this as being the first hand in the game for the 2012 presidential election, then the consequences arising from definitive failure here, could be such that one finds it hard to envisage.

Most surprising from the European point of view is the attitude of investors regarding America and its risk. Whereas the smallest hesitation in Europe sends interest rates through the roof and the stock market plummeting, the idea of default by the United States has not up until this point seen them blow either hot or cold. Something which defies comprehension. Across the Atlantic, public debt stands higher than 10 percent of GDP, more than twice the average of the eurozone. There the stockpile of debt is superior and the balance of payments is dramatically unstable, whereas here it is not. Greece is in a panic, but not California.

The explanation: Is it political? And yet, compromise is just as difficult to find in Washington as it is in Brussels.

In reality, the answer cannot be found solely in America’s fiscal federalism or in the monetary and economic status of the United States. In spite of the facts, there exists a “bias” of optimism with regard to the United States, as there exists also a pessimistic “bias” with regard to Europe. Even if growth by head and job creation were far more elevated in this corner of the Atlantic than at the other, no one would know it. The lesson is clear, the eurozone will create worry so long as it is without understandable and coherent leadership.

The other lesson of the collision this month, July 2011, of European and American schedules is that the question of debt will for a long time obsess our political leaders and the opinion pages. A problem which historically appeared confined to Japan and Italy (to be brief) has become a problem everywhere. This is in contrast to the thriving growth of big businesses, as demonstrated once more by the results Microsoft and General Electric published before the weekend. The much-talked-about “return of the state” post-crisis will have the same bitter taste everywhere: spent economies, rising taxes or inflation.