In America, we have the ability to just ignore the rest of the world now and then. When the news from abroad is too depressing, we turn it off and focus on more interesting American things instead, like a celebrity scandal or the new iPhone or a weirdly viral YouTube video.
I think most Americans have tuned out the debt crisis in Europe. It has been going on forever. There’s no end in sight. Lots of different, faraway countries are involved. The Europeans appear to be dealing with it. So why should we care? Look, a squirrel!
On Friday Standard & Poor’s cut the credit ratings for the debt issued by nine European countries. France, Europe’s second-largest economy, lost its AAA status, Italy’s debt is now rated the same as that of Kazakhstan, and Portugal’s debt is down to junk bond status. Even worse, it looks like Greece won’t be able to reach agreement with its creditors, which would mean that the latest Eurozone effort to address the Greek debt crisis would fail and Greece would be facing default and bankruptcy in March.
In the modern world, the economies of countries are connected in countless ways. We sell lots of good and services to Europe; if its economies crash, those markets vanish and American businesses will suffer. American banks, mutual funds, and investors have purchased the sovereign debt of European countries and would experience huge losses in the event of defaults. And, of course, Europe’s current predicament is just a peek at America’s likely future if we don’t deal promptly with our governmental debt problems. European countries that are saddled with enormous debt are now at the mercy of ratings agencies, creditors, and faceless bureaucrats at the International Monetary Fund.
So, we can be distracted if we choose — but Europe is still there, and its problems are, too. They may be our problems soon, if we don’t start paying attention.