Image via Wikipediabanks and keep the Irish government afloat for the next couple of years. But global investors are far from satisfied. The stock markets, instead of surging, have drifted downward in the aftermath of the Irish bailout, a sign that the crisis is far from over. Some eventualities are predictable. It's well-known, for instance, that Portugal, Spain, Italy, Belgium, and other European countries face a combination of high debt loads and other economic problems that will force spending cuts and tax increases in coming months.
It's the unknowns, however, that are spooking the markets and causing deep worries about the bonds of governments teetering on the edge. It's still not clear, for instance, how big the losses are likely to be at Irish banks, which have been hemorrhaging cash thanks to falling property values and a severe Irish housing bust that still isn't over. Spain is suffering its own real estate collapse, and it's not clear where that bottom is, either. Portugal has a chronically weak economy, which makes a smaller debt load a bigger problem because it can't outgrow its debt. In each case, however, the biggest question isn't about debt loads or growth projections—it's about the ability of political leaders to make the tough decisions necessary to fix their nations' finances.
The parallels to America's fiscal follies are hard to miss. The United States isn't facing an imminent debt crisis just yet. Despite a decade of deficit spending, our debt-to-GDP ratio is a moderate 65 percent or so, compared with levels of more than 100 percent in the most imperiled European nations. For all of its problems, America remains one of the richest places in the world, with an economy that's vibrant compared with most of those in Europe. And thanks to its relative stability, America's borrowing costs are still extremely low.
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