Europe's Disaster Is Headed Our Way
Ferguson, Niall, Newsweek
Byline: Niall Ferguson
Can America withstand the death spiral of debt?
As an author who has just published a book on the crisis of Western civilization, I couldn't really have asked for more: simultaneous crises in Athens and Rome, the cradles of the West's law, languages, politics, and philosophy.
Yet most Americans are baffled by the ongoing economic pandemonium in the European Union. For them, places like Greece and Italy are primarily tourist destinations they'll visit at most once. The finer points of Mediterranean politics leave them cold, except insofar as they're funny. After all, who could resist the opera-buffa character of Silvio "Bunga-Bunga" Berlusconi?
But only a few weirdos really feel their pulses quicken when they hear news like: the new Greek prime minister is a former central banker called Papademos! Ever tried to explain to a New Yorker the finer points of Slovakian coalition politics? I have. He almost needed an adrenaline shot to come out of the coma.
So why should Americans care about any of this? The first reason is that, with American consumers still in the doldrums of deleveraging, the United States badly needs buoyant exports if its economy is to grow at anything other than a miserably low rate. And despite all the hype about trade with the Chinese, U.S. exports to the European Union are nearly three times larger than to China.
Until March, it seemed as if exports to Europe were on an upward trajectory. But the euro-zone crisis has stopped that. Governments that ran up excessive debts have seen their borrowing costs explode. Unable to devalue their currencies, they've been forced to adopt austerity measures--cutting spending or hiking taxes--in a vain effort to reduce their deficits. The result has been Depression economics: shrinking economies and unemployment rates approaching 20 percent.
As a result, according to the new president of the European Central Bank, Mario Draghi, a "double dip" recession in Europe is now all but inevitable. And that's lousy news for U.S. exporters targeting the EU market.
But there's more. …