debt

The alternatives for Europe’s currency, the euro, seem increasingly limited to a desperate muddling through or a chaotic collapse. But there is a bolder and more productive approach that relies on past experience with multiple currencies.

Wealthy Europe and America, crown jewels of mixed capitalist democracies, are drowning in deficits and debt, owing to bloated welfare states that are now in place (Europe) or in the making (the United States). As Europe struggles to prevent financial contagion and America struggles to reduce its record deficits, their dangerous debt levels threaten future living standards and strain domestic and international political institutions. The ratings agencies are threatening additional downgrades; others envision an eventual breakup of the euro and/or demise of the dollar as the global reserve currency.

Greece’s GDP, at about $300 billion, represents approximately 0.5% of world output. Its $470 billion public debt is very large relative to the Greek economy’s size, but less than 1% of global debt – and less than half is held by private banks (mainly Greek).

The current crisis in the eurozone is known around the world as the “euro sovereign-debt crisis.” But the crisis is really about foreign debt, not sovereign debt.