U.S. and E.U. Economies in Bizarro World

The two have taken vastly different economic approaches to their problems, and neither has been satisfactory.

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In the old Superman comic books, Bizarro was a character with the opposite powers of the famous superhero—vulnerable to blue kryptonite (not Superman's green kryptonite) and with ice vision instead of heat vision.

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Now, Europe and the U.S. can both see 'bizarro' versions of their own problems by looking across the Atlantic. Both economic powers are dealing with budgetary and macroeconomic difficulties, and both have dealt with their problems in very different ways—the U.S. via fiscal and monetary stimulus and the E.U. via austerity. Still, they are similar in two key ways: they face continuing economic problems and pose potential threats to foreign economies.

"We did crisis management and it helped us tremendously. But what we have not done is deal with a budget and our debt," says Scheherazade Rehman, director of the European Union Research Center and professor of international affairs at George Washington University. "In Europe on the other hand, what they've done is all these structural adjustments and austerity programs." Though Europe has finally started emergency measures like bailouts and debt writedowns, she says, waiting to implement such fixes made for lost time.

The comparison isn't perfect, of course. The E.U. contains a monetary union of many different nations with many different fiscal problems, requiring cooperation on a scale much different from anything Congress deals with, for example. But the two parties' approaches together show that they have to strike a delicate balance crawling toward recovery without worsening their debt situations.

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Austerity will eventually pay off, says Rehman, as Europe finally reins in extraordinarily high debt levels from social spending programs.

But in the short term, austerity wreaks havoc on economic growth, and is one reason why some E.U. countries are seeing their GDPs slide backward.

The belt tightening and its aftereffects have taken a political toll, with Socialist Party candidate Francois Hollande taking the French presidency, and the Greeks voting fringe candidates from both the left and right into parliament.

The austerity measures may have been necessary to keep Greece in the E.U., but Greek voters cast their lot for self-interest, says Barry Bosworth, a senior fellow at the Brookings Institution.

"You can't expect people to live in a society where youth unemployment rates are over 50 percent and overall unemployment rate is 25 percent," he says.

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And Hollande's victory over the more conservative Nicolas Sarkozy leaves many wondering what will happen next in E.U. negotiations. Some analysts wonder how Hollande and German Chancellor Angela Merkel, who's been the driving force on continental austerity measures, will cooperate in the future on solving the debt crisis. "Things get said during elections, and then when [the winners] start to govern that's when things get serious," Bosworth says. "So I think everyone is still waiting to see in fact what France does."

Rehman believes that trouble still lies ahead for France. "The problem is it doesn't matter if it was Hollande or it was Sarkozy. The pain's coming. One's simply going to delay the pain a little more," she says.

Meanwhile, the U.S. is seeing steady growth alongside spiraling national debt. According to the Congressional Budget Office, federal debt held by the public was 40 percent in 2008 and has grown to around 70 percent.

In either case, the problems could have global repercussions. The E.U. is a major consumer of U.S. exports, so further economic contraction in Europe could therefore hurt the U.S. in a big way. Likewise, global financial institutions that are exposed to European debt mean potential global repercussions—for example, in the event of default by Greece or any of its other debt-saddled members.

Meanwhile, the U.S.'s problems have similar potential effects. Should U.S. economic growth happen to slip, it will hurt U.S. trading partners. And the congressional showdown over the U.S. debt ceiling last August caused nervousness in halls of government worldwide.