Europe and U.S.Financial Woes Not Far Removed
Europe and U.S. Financial Woes Not Far Removed
By Mike Clemens
Recently the news has been filled with stories about financial problems and, in some cases, the prospect of a total financial meltdown. These rumors are not just related to a U.S economy that continues to struggle, but to a world economy that is also feeling the pressure of financial trouble.
All this information can be quite confusing. It is difficult to keep track of which counties are experiencing which problems and what exactly is or is not being done to address them. However, the central issue of all these financial problems is the interconnectedness of the world’s economies. Panic, confusion, and innumerable ties to one another have led to what some have called the world financial crisis.
Although each country has its own specific issues that have contributed, the situation in most nations has been furthered by a rapidly increasing national debt.
In the past year especially, the United States has made several unsuccessful attempt to alleviate some of its debt. In August, Congress voted to raise the debt ceiling, narrowly avoiding a default, but allowing the country to continue to borrow beyond its means. Also in August Standard and Poor’s downgraded the U.S credit rating from AAA to AA+. And just last week Congress’s “Super Committee” failed to come up with a solution that would cut $1.2 trillion in government spending triggering a series of automatic cuts that do not sit well with either party.
Debt also looms over the shoulders of European governments. Italy has been singled out the most for its financial issues of late. According to CNN, Italy’s current national debt stands at €1.9 trillion, or $2.6 trillion, a number which is equal to 120% of its GDP. To put this in perspective CNN reports that the total combined debt of Greece, Ireland and Portugal, three other European nations facing severe financial trouble, is only equal to €640 billion. That’s nearly €1.3 trillion less than Italy.
The financial trouble of these and other nations threaten to sink the European Union who is desperately trying to salvage economies that have already been severely damaged. The EU’s bailout fund has been enlarged, but even with the new influx of funds it is unlikely that there will be enough to stabilize the entire continent. There has also been concern about the possible failure of the Euro, which would cripple all economies that operate on the currency.
The possibility of European failure also has implications for the United States. Although U.S trade does not heavily depend on Europe, it is dependent upon the continued strength of the international banking system. Just as European economies are connected by the EU and the euro, U.S banks and lending firms also have much invested in Europe. As economic crises in countries like Italy has unfolded, U.S banks have released more information about just how connected their organizations are to those in Europe.
As problems of this nature continue to escalate, they will no doubt gain increasing amounts of international attention. The implications could be so broad that it is safe to say that debt, spending, and the financial crisis will factor heavily into the upcoming presidential election.