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Debt Debaters

This post is from Andrew Zvirzdin, who used to be a guest blogger, but now joins Atlantic Review as part of the team. Andrew is originally from upstate New York and is currently finishing his second year of grad school at the Maxwell School in Syracuse

After the implosion of the Dubai miracle in the desert, investors are nervously looking elsewhere for the next debt debacle. No small wonder that the focus has turned to European countries with high debt loads such as Greece and Italy. Top European monetary gurus have been quick to assure investors that no European default is likely. But these days, anyone with a big credit card bill looks suspect in international finance.

The remarkable thing is that the EU has taken a significant lead in charting the course towards global economic recovery, despite its heavy debt burden. Consider for example that Germany and France were among the first countries to escape the present recession late this summer. Their robust growth was due in part to automatic stabilizers already in place when the financial crisis hit. And the notorious-and by some estimates, beneficial-cash-for-clunkers program in the US was inspired by Germany and other European countries who already had similar but more successful programs.

Now, as Europe is fading as the American health care punching bag, the continent's ability to live with government debt is under close scrutiny. Paul Krugman has recently warned (here and here) against an excessive focus on fiscal deficits in the US, pointing to Europe as an example: "If these countries can run up debts of more than 100 percent of GDP without being destroyed by bond vigilantes, so can we." CNBC is less positive in its assessment but acknowledges that Italy's resilience despite high debt levels means there is still a "lot of debt tolerance out there."

Still, debt will remain a worry on everyone's mind for some time to come, though the Eurozone has the tools needed to weather this storm (as I have written about here and here), and the US still has its financial strength. With the US and European countries consistently ranked as among the most indebted countries in the world, both sides of the Atlantic will likely need to work together on debt-related matters. Indeed, as the eurozone has already shown, teaming up with other indebted nations makes it that much harder to be bullied around by international markets.

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Pamela on :

And the notorious-and by some estimates, beneficial-cash-for-clunkers program in the US was inspired by Germany and other European countries who already had similar but more successful programs. -------------- I really would like to hear more about the successful European programs. On this side of the pond, the cash-for-clunkers program is widely seen as farcial. All it did was front-load auto purchases that would have been made in any case. And then the buyers found out that they would have to pay taxes on the credit they were given under the program. Not to mention that perfectly good engines were completely destroyed and are now unusable for recycling. I would like to see citations for how 'beneficial' that debacle was. ----------------- As for Krugman - Nobel prize notwithstanding - keep in mind that the once venerable New York Times own ombudsman Daniel Okrent could not countenance Krugman's slant. "Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults." http://www.nytimes.com/2005/05/22/weekinreview/22okrent.html?hp&oref=login I hope you are aware that because of Krugman's - um - selective - reporting, the NYT had to change its policy for the comment pages. Twice.

Pat Patterson on :

German car sales were indeed up in September but that is only in comparison with September 2008. That's like Pedro Guerrero fans bragging that he hit 25 point higher in the playoffs this year than last year and fail to mention that his batting average was miserable the year before. Overall sales for 2009 are actually going to be worse than 2008 in Germany. The Economist estimates sales will be off another 27% compared to the year before. November sales down 11%, Porsche is now part of VW not the other way around, Audi is in trouble, truck sales are helping Mercedes but only in terms of getting people into smaller and smaller cars then the program could be considered a success. While inventories of German cars are currently close to 180 days which is twice the number in normal years.

John in Michigan, US on :

"Consider for example that Germany and France were among the first countries to escape the present recession late this summer." This point was made almost 4 months ago at "Old Europe Drifts out of Recession First". [url=http://atlanticreview.org/archives/1318-Old-Europe-Drifts-out-of-Recession-First.html#c20043]I was skeptical[/url], because the early economic figures are often wrong. However, it now appears that the European recovery is real, and for the first time in recent history, it appears that Europe will in fact recover slightly before the US. Congratulations! The US and European economies are still very connected and inter-dependent. But perhaps we are entering a new phase of history in which the US is not always the economic leader. We will see. -------- The debt question is HUGE. I will be commenting on this later, for now here are some posts were I've discussed the danger of a [url=http://www.google.com/custom?hl=en&safe=off&client=partner-pub-8653235624472969&cof=FORID%3A1%3BGL%3A1%3BS%3Ahttp%3A%2F%2Fatlanticreview.org%2F%3BLBGC%3A336699%3BLC%3A%230000ff%3BVLC%3A%23663399%3BGFNT%3A%230000ff%3BGIMP%3A%230000ff%3BDIV%3A%23336699%3B&domains=http%3A%2F%2Fatlanticreview.org%2F&num=20&ie=ISO-8859-1&oe=ISO-8859-1&q=treasury+bubble&btnG=Search&sitesearch=http%3A%2F%2Fatlanticreview.org%2F]Treasury Bubble[/url]

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