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How bad is Greece’s debt?

Here are a chart and a graph showing the PIIGS’ and the United States’ indebtedness — more specifically, their public debt and 2009 deficit relative to GDP. Just glancing at the chart, and remembering that the PIIGS are among the weakest economies in Europe, it seems that the United States isn’t in great shape either. ...

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Here are a chart and a graph showing the PIIGS’ and the United States’ indebtedness — more specifically, their public debt and 2009 deficit relative to GDP.

Just glancing at the chart, and remembering that the PIIGS are among the weakest economies in Europe, it seems that the United States isn’t in great shape either. It’s just on par with Spain, whose economy is struggling.

But the United States has a number of advantages that make its debt and deficit picture brighter. In the future, Washington might answer to Beijing when it comes to its debt addiction. But for now, it determines its own fiscal and monetary policy measures. Not so for the euro-using PIIGS. Washington can slash its interest rate to zero, devalue the dollar, and perform quantitative easing — none of which the PIIGS can do. Plus, Washington has much lower debt costs; much of the country’s debt is basically free, due to the dollar’s status as the world’s reserve currency.

In contrast, countries like Spain and Greece are mostly at the mercy of their partners in the Eurozone. At The Guardian, economist Claus Vistesen notes that there is no “systemic set-up,” no playbook, for what the Eurozone should do to prevent or counter the default of one of its members.

The European Central Bank can’t bail Greece out, per Europe’s own rules — the Maastricht treaty says that “the Community should not be liable for or assume the commitments of central governments, regional, local or other public authorities of another member state.” Simon Johnson argues that the IMF might be the obvious player to step in, but throws cold water on the idea — would it have enough money to bail all of the flailing PIIGS out? Would it provide the same sweetheart deals it did to Eastern European countries? Where would that leave the Eurozone? 

I’m a bit more bullish on the prospect of the IMF stepping in with an emergency deal. But I think it is more likely the strongest of the big European economies, led by Germany, will eventually come around to coming together along with other partners to write a check and keep Greece afloat.

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