Runaway Debt: Watching Greece and now Portugal verge on financial default due to fiscal profligacy should send a chill up every American’s spine. This is our fate, too, if we don’t change course — and soon. “America is on a path to become a European-style welfare state.”

IBD Editorial

The failure of Western nations to control their spending has now become a crisis — not of any particular nation, but of all.

Portugal on Tuesday became only the latest of the so-called PIIGS — Portugal, Italy, Ireland, Greece and Spain — to be hit by speculation that it might soon fail. Greece is already technically in default on its debts, and has had to make humiliating requests for aid from the EU, U.S. and IMF.

In this environment, the euro sank and European stock markets took hits Wednesday after Fitch Ratings downgraded Portugal’s long-term credit rating from AA to AA-, adding to the euro zone’s fast-expanding list of economic woes.

European nations will soon find that no one wants to hold a Euro-bond. It’s just too risky. Faced with its failure to handle the crisis, the EU has opted to ask the International Monetary Fund — the global lender of last resort for deadbeats — to come in and help.

Why is this happening? Simply, neither financial markets nor European citizens are convinced any longer that the EU can live by the very rules that made its common currency and economic policy existence possible. That rule, basically, is this: No EU nation can run a deficit of more than 3% of GDP annually, and none can exceed public debt of 60% of GDP annually.

The PIIGS are by far the worst when it comes to this critical measure of budget discipline. Portugal, for instance, has a deficit of 9.3% of GDP, and debt of over 80%. But it’s not alone. No major nation in the EU meets the criteria for membership today. Investors don’t want their bonds.

What’s this got to do with the U.S.? Plenty. Right now, we wouldn’t qualify for EU membership either. And just because our government refuses to address its own fiscal irresponsibility, doesn’t mean the people aren’t thinking about it.

FULL STORY

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