By Tamsin McMahon - Wednesday, December 19, 2012 - 0 Comments
While eurozone nations tighten their belts, America may face the bleaker future as its debt troubles pile up
With the international community warning again that European debt woes could knock the wind out of the U.S. recovery—and by extension Canada’s economy—and spark a global recession, there was a rare bit of good news coming out of the Continent. A new study by the Lisbon Council and Berenberg Bank suggests that it’s Europe, not the United States, that is on the more stable path toward long-term economic prosperity.
Since 2009, the eurozone’s most troubled countries have been making significant gains in slashing their deficits, overhauling their civil service, cutting labour costs and fixing their trade balances. Far from showing evidence of “moral hazard,” the authors say countries that were bailed out by the European Union and the International Monetary Fund “are working hard to make sure that they deserve such support and can get back onto their own feet again fast.”
The same, the report warns, can’t be said of the United States, which faces a $1-trillion deficit for the fourth year in a row and where its lawmakers are deadlocked over how to handle the prospect of $600 billion in tax hikes and spending cuts set to automatically take effect at the end of the year, known as the fiscal cliff. Economists are predicting that once again Congress will be forced to raise the debt ceiling by February and that the country may need a fourth round of quantitative easing (in which the Federal Reserve pumps money into the economy by buying Treasury bonds).