Investors Trust U.S. More Than Europe

Despite the risk of government bankruptcy, the United States is in better shape than either Italy or Spain. Without a common fiscal policy among European countries, these nations will remain as they are.

America is on the brink of bankruptcy, but investors in the international bond market would rather monitor the heavily indebted EU countries. Furthermore, loans from Washington are still requested despite major conflicts over the U.S. debt ceiling. At the same time, Spanish and Italian bonds are finding fewer and fewer buyers. Is all this true? Do dubious investors intentionally attack the sympathetic bond nations here in southern Europe in order to damage them?

From the perspective of conspiracy theorists, it may be so. But everyone else should ask themselves a simple question: Who would you allow to borrow 20,000 euro from your own private funds for five years? Spain, Italy, or the USA?

The Ultimate Currency Is Trust

No matter what the answer is, apart from the raw numbers of budget deficit or gross debt (U.S. debt is 84 percent of the economic output; Italian debt is 119 percent), in deciding for or against one of the debtors another critical currency plays a role: trust in the future and in political institutions.

Regarding the United States, most observers have correctly presumed that the nation — despite all the current hair pulling — will bail itself out of the debt situation sooner or later. The country will attempt to achieve this through resolute action, higher debts, devaluation of currency, and so forth.

Only a Common Financial Policy Can Help the EU

The heavily indebted European countries cannot do that. The ever-increasing millions of bailout funds are resulting in the fact that most governments in the exchange rate system can no longer oversee the process to resolve their own financial policies.

The heads of the EU governments can only sustain a lull in the bond prices in Europe if they create a common fiscal policy and efficient institutions. Even if, by chance, there is a compromise, a bailout fund is not enough to solve the problem.