Is the West going broke? It would seem to be a legitimate question in this era of sovereign debt panic. Not only is the euro zone struggling to prop up the European common currency with enormous bailout packages for its most indebted members, but concerns that Greece may ultimately go bust anyway have many afraid that the worst is yet to come.
And then there is the United States. A report released by the International Monetary Fund last week suggests that US national debt could reach 100 percent of gross domestic product by 2015 -- and despite efforts to slim down the budget pushed through Congress by the administration of President Barack Obama last week, there is little indication that the upward trend will be reversed any time soon. This year's budget deficit will add a cool $1.5 trillion to the US debt load.
While few would argue that the 100 percent figure is anything more than symbolic, US national debt is indeed astronomical. Its debt-to-GDP ratio is, in fact, higher even than Ireland's and Portugal's, both of which have asked for immediate aid packages from the euro zone. And concerns about US debt are clearly growing. The decision on Monday by the ratings agency Standard & Poor's to revise its outlook on America's AAA debt rating from stable to negative merely highlighted those worries.
Difficult Road Ahead
Obama on Tuesday addressed his country's debt woes in a speech at a Virginia community college and spoke of the need for an end to the Bush-era tax cuts for America's wealthiest -- cuts that Obama himself extended last December in a deal with the Republicans. He also spoke of reforms necessary to Medicare and the health care system and even hinted that defense budget cuts may be unavoidable.
"Finding savings in our domestic spending only gets you so far," he said. "We are also going to have to find savings in places like the defense budget."
Still, recent history has shown that, at least when it comes to winning back a rating of "stable," radical spending cuts are necessary. It was only two years ago that Great Britain lost its S&P stable rating -- prompting the newly elected government of Prime Minister David Cameron to launch an austerity package for the ages, one including deep public sector job cuts, higher taxes and a rise in the retirement age, among other measures. Last October, Great Britain regained its stable listing. The cost to the British economy and society, of course, has yet to be determined.
The US would likely have an even more difficult road to travel. Standard & Poor's thinks it is a road that Washington is uninterested in going down. "More than two years after the end of the 2008 financial crisis, the US has still not been able to agree on a strategy for reversing its worsening financial situation," wrote Standard & Poor's managing director David Beers in a contribution which appeared in the financial daily Handelsblatt on Wednesday. German commentators on Wednesday take a closer look at the Standard & Poor's decision.
The center-left daily Frankfurter Allgemeine Zeitung writes:
"The reason for the Standard & Poor's change to America's rating outlook is not new financial data. Rather it is the political danger that the Democrats and the Republicans will only agree on a debt-reduction strategy after the 2012 presidential elections."
"The primary reason for America's political stalemate is Obama's refusal to see that, in an aging society, social spending cannot be as generous as it has been in the past. The great social reformer Obama is at least 20 years too late with his ideas. And given the irreconcilability of the two parties, it isn't possible that a plan to reduce national debt will take shape within the next two years. Obama only heated up the campaign atmosphere with his budget speech last week. Indeed, the top rating for US bonds is in danger."
The financial daily Handelsblatt writes:
"The Republicans are going too far in the way they are instrumentalizing the country's debt problems to attack Obama. First, they threatened until the last possible moment to block the budget and force a government shut down. Now they are threatening to block an increase to the federal debt limit should Obama not commit to a radical debt-reduction program. The consequences of such a move would be even more severe than a government shut down. It is not just a question of a power struggle between two political parties in Washington. It would be a gamble with US trustworthiness as a debtor."
"You shouldn't play with credibility. Creditors who are not sure that they will ever see their money again stop lending -- or they require high interest payments. In other words, the Republican threat to block an increase in the federal debt limit ... could ultimately cost the country more money rather than less."
The center-left Süddeutsche Zeitung writes:
"The case of the US shows that it is time to limit the power of ratings agencies. Not because S&P was wrong in questioning America's credit rating. The doubt is well founded. Indeed, one wonders why S&P, and its two competitors Moody's and Fitch, hasn't long since stripped the US of its AAA rating. The step by S&P is a positive signal, because it counters accusations that US ratings agencies are more critical of European debtors than they are of American ones."
"But that's not the main issue. The verdicts of the ratings agencies are not dangerous because they are often wrong. Rather, they are dangerous because so much depends on them. ... The result is that the negative prognoses of the agencies are often self-fulfilling, as has been the case with debt-ridden euro-zone countries. The problem was particularly evident when the agencies gave ratings in 2007 that were much too high, thereby contributing to the financial crash."