Last month, Americans were transfixed by the amateur theatrics undertaken by the Washington political establishment in connection with the debt ceiling crisis. The bad faith, poor tactics and wholesale avoidance of reality were offered by all players in very large doses. When the Republican leadership finally capitulated (thereby bringing down the curtain on the tawdry production), it soon became apparent that sound and fury had signified nothing except another exercise in can kicking. Public approval of Congress sank to the lowest level on record, and has only dissipated due to the unmitigated disaster of the Obamacare launch. But as bad as domestic approval has become, the behavior of the U.S. government has played far worse internationally.
A year before, European politicians faced what looked like the same situation of national default.But after fraught negotiations, they at least achieved the illusion of a political compromise. The narrative that emerged is that Europe was better able and more willing to compromise. Although this shallow conclusion overlooks key fundamental differences between the political structure of theU.S and the European Union (EU), it nevertheless has created the perception of lost American leadership. Since America owes its continued economic strength to its perceived political might, such changes could be dangerous in the extreme. However, the reality is that the European political machine is just as dysfunctional and completely insulated from the interests of its citizens.
In order to force political union and the creation of a European super state, often against democratic wishes, several EU nations created the Eurozone and issued their own single currency. However, unlike the United States, the EU is not yet a unified federal state, with a single treasury. Furthermore, many important EU nations, such as the UK, are not members of the Eurozone. Therefore, while the European Central Bank (ECB) may exert moral suasion, it has no executive power over non-Eurozone members of the somewhat politically disparate EU.
In the United States, Fannie Mae and Freddie Mac were rumored by Wall Street to have an implicit federal government guarantee. As such, they were enabled to over borrow at extremely low rates. A similar dynamic existed with smaller, so-called 'peripheral' nations within the Eurozone, including Greece, Portugal and Spain. These overly indebted, economically questionable nations were able to over borrow at low rates under the implicit guarantee of far stronger members of the Eurozone, such as Germany and the Netherlands.