Will Europe's crisis sway Washington?

As Europe continues to stumble, the results of its dysfunction may provide a warning on the United States' budget deficit impasse.

On both sides of the Atlantic, we have finally come to the point where if we continue on our present respective paths the outcome is not likely to be pleasant. In the United States the wake-up call was the failure of the Congressional Super Committee to come up with a credible plan to reduce the US budget deficit by $1.2 trillion over 10 years. In Europe it was the rise in the cost of raising government funds in Italy and Spain, culminating in November with the lack of bids for part of an auction of German debt and a sudden rise in interest rates there. Finally it appeared that doing nothing and muddling through were incompatible. The verdict was delivered in both the European and American stock markets by a resumption of the free fall in equity prices that we experienced in August and September.
The failure of the Super Committee was part of the pattern of dysfunctional government that began last summer with the downgrade of US government debt and the battle in Congress over raising the debt ceiling. At that time political lines were drawn, with the Republicans not wanting to increase revenues and the Democrats wanting to limit entitlement reductions. A compromise seemed unlikely even then, and perhaps it was wishful thinking to hope that the Super Committee would come up with a workable plan to reduce the deficit. Nothing major seems to happen in Washington until a crisis is upon us and we weren’t at that point yet.


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