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FINANCE/ The truth about the crises in the US and Europe

August Mon 01, 2011

(photo Fotolia)  (photo Fotolia)

If someone were to ask me what the crux of the problem of US sovereign debt was, the response that would come to me spontaneously (having studied and worked in Washington for 18 years) would be: “It’s federalism, my boy!”. If, instead, one were to ask me to explain the problem at the heart of the sovereign debt of Greece, Italy, Spain and Portugal, I would respond with equal immediacy, given that I was born and live in Rome and have been married to a French woman for 43 years, “It’s the difference in productivity and competitiveness in the Eurozone, my boy!”.

I believe it is essential to grasp these fundamental aspects. Otherwise the “Atlantic” sovereign debt would end up in a cauldron where everything is indistinguishable. The United States has a Constitution that limits the functions of the Federal Government to national defense and foreign policy. The other functions (even in the area of economic policy and public finance) belong to Congress or (especially in the areas of education, health care, and social and industrial strategies) to each of the 50 states of the Union.


The President and Congress are elected in different ways, with different electoral systems and even different electorates. The President is not an expression of the Parliament, but gets his own authority from the electoral college. Likewise, Congress responds to its voters. For this reason, the federal balance sheet is not born with a financial law proposed by the White House, but inside the relevant Committee in the House. The tenant of the house at 1600 Pennsylvania Ave can reject it, but if it is approved by the appropriate majority, either he accepts it or he packs his bags and leaves the Oval Office to his Vice-President for the rest of the term.

Analogously, the level of public debt (now around 100% of US GDP) has to be “authorized” by Congress, on the basis of paragraph 8 of Article 1 of the Constitution. If they do not authorize it, no Secretary of the Treasury can use a decree to begin issuing Treasury bonds.



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