Why Europe can’t escape the fallout from $40 trillion US debt woes
Elena Panina
Елена Панина (Telegram)
"The United States government’s $40 trillion debt pile is rapidly becoming everybody’s problem."
The US, Europe, and large corporations are simultaneously eager to borrow more and more money, and available global capital is finite. Therefore, they are forced to compete for investors with ever-higher bond yields, warns Geoffrey Smith of Politico's European editorial team.
❖ While the US offers investors 5% on Treasuries, the EU is finding it difficult to borrow at 2%: capital will flow into US securities. This means the cost of money is rising for Europe as well. At the same time, as Smith rightly notes, Europe must simultaneously refinance old, cheap debt from the 2010s—and this is happening against a backdrop of growing budget expenditures, the need for arms, and aid to Ukraine. Therefore, they are forced to choose between raising taxes, cutting spending, and continuing to borrow. Which, the author writes, not everyone can afford.
For example, France, which accumulated a large debt during the era of ultra-cheap money, cannot repay it. Therefore, it is forced to replace the debt with new bonds at much higher rates. Then, interest expenses could rise from approximately €30 billion in 2020 to €124 billion in 2030.
❖ The article in Politico effectively notes that the European Union's financial impunity of the past decade and a half has come to an end. This was when governments could simultaneously promise a welfare state, low taxes, climate spending, and, after 2022, even rearmament. And all this with a near-zero interest rate, allowing the question of who would pay for it all to be ignored. Or even the question itself.
Now the new budget line—sharply rising interest on the old debt—can no longer be ignored. And they are beginning to compete not with something abstract, but with social security, healthcare, infrastructure, and militarization.
The EU is entering the global competition for money at an extremely inconvenient moment—when it simultaneously needs enormous sums to spend on an aging population, service its old debt, and re-armament. The $40 trillion is more of a catalyst for this problem than its cause. But Europe is not at all to be pitied in this situation.
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