May 14, 2012
That is what readers of a front page article on the impact of austerity in Spain must have concluded when the Post told readers:
“The tensions between tackling runaway deficits and stimulating the economy are in many ways akin to those facing the United States, where political leaders are struggling to agree on the right balance.”
Actually, the problems facing Spain and the U.S. are not comparable, most importantly because the United States issues its own currency and Spain does not. This is the main reason that the interest rate on 10-Treasury bonds in the United States is less than 1.8 percent, while it’s close to 6.0 percent in Spain.
Spain’s problems can be viewed as being more in line with the fiscal problems that a particular state, like California or Ohio, might face. The existance of single currency under the control of the European Central Bank, means that individual countries cannot count on the central bank to support their debt, which makes it far more risky than the debt of countries like the U.S., U.K., or Japan, even if the latter might carry much heavier debt burdens.
The term “runaway” was strange editorializing that does not belong in a news story. It is strange because Spain’s deficit is entirely due to the economic crisis created by the collapse of its housing bubble.
Comments