Too many voices are pointing at the imperfections of the Euro as a monetary union, and blaming the Euro for the lingering recession across the continet, but it seems that the currency is not the root cause of problems. The real crisis is fiscal imbalance: Greek pensions, Spanish welfare, Italian debt/GDP ratio. Contrast those nations’ fiscal policies with Germany, the Netherlands, and others.
So the question isn’t what transmission mechanism might bring the interest rate spike to U.S. bonds, it is whether the Senate can pass a budget. If America has another 5 years of trillion dollar annual budget deficits, our debt/GDP ratio surpasses Spain’s. In fact, as AEI President Arthur Brooks recently noted in the Wall Street Journal, America is already more European than many European nations: “[O]ur debt-to-GDP ratio is 103%; Spain’s is 68%.” To be sure, if we don’t count debt America owes America, the ratio is only 73%, but CBO predicts it will rise to 200% in 25 years.