Why America is outperforming Europe

[w¡n9Nµ7 §£@¥€r 123]

Ever since its launch back in 1999, admirers have pushed the notion of the euro as a rival to the dollar: in time, Europe's single currency would challenge the greenback's supremacy as a global reserve currency. And their confidence looked well placed as the euro weathered the recent economic battering.

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But the birthday party applause now looks premature. The euro is faltering as the deepening global economic crisis exposes the fault lines within the 16-nation euro zone, set to shrink by 1.9 percent this year, compared to 1.5 percent in the U.S. Once again, economists are airing their doubts over the currency's long-term prospects while analysts are busy re-assessing the credit ratings of Europe's underperformers. While exact numbers are hard to come by, there's no evidence as yet that central banks around the world are shorting the dollar in favor of the euro. There's even dark talk of member states quitting the zone altogether.

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In the past two weeks, Standard & Poor's has downgraded the credit ratings of three euro zone members, Greece, Spain and Portugal. The gloomiest forecasters talk of a possible sovereign debt default in Greece requiring an IMF-style bailout by fellow members with harsh conditions that would jeopardize the country's fragile political balance.

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To the skeptics, the crisis has merely demonstrated the strength of the internal tensions that they foresaw at the euro's birth. Prudent Germany must share a currency with Greece, which has now amassed debts equivalent to more than 90 percent of GDP. Spain's problems are blamed in part on a busted housing boom fueled on unsuitably low interest rates set in Frankfurt. Meanwhile, countries such as Italy can no longer resort to devaluation, once their standard tactic to boost exports when the economy turned down.

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The EU's response to the crisis has been particularly lacking. National governments have been busily pursuing their own individual, haphazard solutions to the crisis, and—in contrast with the U.S. Federal Reserve—the European Central Bank has been slow to respond, raising rates into last summer. EU member nations have doled out too little fiscal stimulus, too late.

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If the recession worsens, possible outcomes are scary. Few are willing to rule out with absolute certainty a sovereign default—most likely at this point among one of the hard-hit PIGS (Portugal, Italy, Greece and Spain).

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The uncertainty helps explain why the euro still commands a share of foreign-exchange reserves less than half as large as the greenback's. Investors like that a single authority sets fiscal policy in the United States, and that U.S. bond markets are much larger and more liquid.

What's more, the United States has numbers on its side. The population of Europe is stagnating, while America's is expected to rise by at least 20 percent by 2050.

http://www.newsweek.com/id/181316/output/print

[S and S 12]

Hmmm, interesting article. I noticed the Euro growth was slowing down though I hadn't spent much time reading up on it.

[w¡n9Nµ7 §£@¥€r 123]

Hmmm, interesting article. I noticed the Euro growth was slowing down though I hadn't spent much time reading up on it.

Europe's going down. America wins. Again!