According to an article on The New York Times, this has had serious economic consequences for Europe. Because of an increase in the instability of the European markets, the strength of the Euro is seriously being called into question. As a result of the wavering value of the euro and turnover of some major leaders in the EU, the European stock markets have been hit very hard. The European Union is nervous about Greece, as well as Portugal, Italy, and Spain allowing their debt to GDP ratios get out of control because it may cause the other countries in the EU with stronger economies to question whether or not they should remain members in the Union. And why shouldn’t they? If Greece, Portugal, Italy, and Spain continue in this direction, they will become a great credit risk to the EU. The other members of the EU may begin to feel like there’s no reason to help countries like Greece run deficits if the country isn’t using the money on loan to help get itself out of debt.
Does any of this sound familiar? It should. This is what has been happening in the United States for the last 8-10 years. China has been funding the United States debt, most notably since the Bush Administration took the reins, and our debt to GDP ratio appears to still be completely out of whack. What should frighten us the most is the thought of China pulling the plug on this funding. Just like people do not want to invest in a company that shows no signs of becoming profitable, China may begin to feel the same way. Something else worth noting is how we, as citizens of the United States, exhibit almost identical behavior. It is what our country was founded on: credit. We have the ability to take out loans (with some restrictions and guidelines of course) and blow all the money on something that does not benefit us in the long run. Anybody can apply for a credit card with an enormous spending limit, without even having the money to pay the credit card companies back. So many people spend over their limits on useless items and get so far into debt that they can’t get out. If the United States does not get its spending under control and begin making serious progress in getting out of debt, the US may find itself in the same position as all those ignorant citizens living above their means.
