As U.S. Debt Surges, Europe Brings Its Own Under Control

The Wall Street Journal: Amid the challenges posed by the Covid-19 pandemic and Russia’s invasion of Ukraine, both the U.S. and Europe increased their borrowing. However, while the U.S. deficit continues to rise, Europe is on track to significantly reduce its deficits. The U.S. government’s deficit grew to $1.78 trillion, or 6.3% of GDP, whereas the IMF expects the combined deficits of eurozone governments to fall to 3.4% of GDP this year. Lessons from the past financial crisis and existing eurozone rules have helped European governments exercise greater fiscal discipline, unlike in the U.S. Although government bond yields have risen globally, one key factor is the U.S. deficit. “It’s really quite striking how the paths have diverged,” said Christian Keller, chief economist at Barclays. “There doesn’t seem to be any effort in the U.S. to bring spending down or raise revenues.”

Countries like Greece and Portugal, which faced financial crises a decade ago, are expected to have much smaller budget gaps. The IMF estimates that rising government debts will mainly be driven by the U.S. and China, reducing Europe’s role as a leading driver in increasing global debts. While there are debates over the exact budget rules within the EU, there is a general consensus on maintaining fiscal prudence. However, not all European countries are equally stringent; Italy and France plan for a slower decline in deficits, potentially risking sanctions from the European Central Bank.

The entire article can be read at the link As U.S. Debt Surges, Europe Brings Its Own Under Control – WSJ