Over-reliance on debt finance has strained the fabric of the democracies that it has helped to fund, with government finance increasingly determined not by electoral cycles and political deliberation, but by repayment schedules. Europe and the US must devise a better way to manage debt – one that does not undermine self-governance.
NEW YORK – When Greece’s sovereign-debt crisis threatened the euro’s survival, US officials called their European counterparts to express bewilderment at their inability to resolve the issue. Now, the tables have turned, with American leaders on the receiving end of such calls. The most recent threat of a US debt default has been avoided, but only temporarily. Another battle looms early next year, when the US government’s debt ceiling will have to be raised again.
In Europe, the absence of a political union – considered a necessary precondition for sharing debt obligations and, thus, putting the euro on a sound footing – is widely held to lie at the root of the continent’s crisis. But the US crisis suggests that political union is no panacea for managing sovereign debt. For weeks, Republicans in the House of Representatives threatened to keep the government shuttered – thereby preventing it from extending its borrowing authority beyond the October 17 deadline – in order to challenge laws that were enacted by Congress as a whole and upheld by the Supreme Court.
In the eurozone, the main source of disagreement has been how debts in need of refinancing were incurred – that is, whether they contravened agreed debt limits. In the United States, the bone of contention has been the purpose that the funds will serve. The difference is ultimately minor, and should not be allowed to overshadow what is really at stake: democratic self-governance in an age of high public debt.
NEW YORK – When Greece’s sovereign-debt crisis threatened the euro’s survival, US officials called their European counterparts to express bewilderment at their inability to resolve the issue. Now, the tables have turned, with American leaders on the receiving end of such calls. The most recent threat of a US debt default has been avoided, but only temporarily. Another battle looms early next year, when the US government’s debt ceiling will have to be raised again.
In Europe, the absence of a political union – considered a necessary precondition for sharing debt obligations and, thus, putting the euro on a sound footing – is widely held to lie at the root of the continent’s crisis. But the US crisis suggests that political union is no panacea for managing sovereign debt. For weeks, Republicans in the House of Representatives threatened to keep the government shuttered – thereby preventing it from extending its borrowing authority beyond the October 17 deadline – in order to challenge laws that were enacted by Congress as a whole and upheld by the Supreme Court.
In the eurozone, the main source of disagreement has been how debts in need of refinancing were incurred – that is, whether they contravened agreed debt limits. In the United States, the bone of contention has been the purpose that the funds will serve. The difference is ultimately minor, and should not be allowed to overshadow what is really at stake: democratic self-governance in an age of high public debt.