The Nation notes that austerity policies in Europe have proved to be very damaging to economic growth in the region, and points out that after adhering to IMF and EU austerity programs since last May, Portugal is “even deeper in the hole. The austerity has only increased its debt, as it has spread more suffering.”

The editorial goes on to point out that the euro countries have also been hindered by their unified currency system. This system currently makes it difficult for member governments to see to it that there is a market for their bonds and other securities—namely, their central banks. Taking exception to Republican fears of a “Greek-type collapse,” the Nation emphasizes that the “sovereign currency” possessed by the American government has always allowed it to avoid difficulties making payments on its debt. (A web version of the editorial is here. A similar Washington Post opinion piece is posted here.) Compare this with the current financial problems experienced by many state and local governments, as documented by recent articles in the New York Times (“Deficits Push New York Cities and Counties to Desperation”) and the Wall Street Journal (“States Keep Axes Sharpened”).

Many things can go wrong in an economy, even one with a smoothly running monetary system.  But the Nation’s argument remains crucial for the U.S.—first, that deficit-financed stimulus programs have helped keep our economy going; and second, that a government with its own currency is almost unable to default.

Quick note: In an interesting op-ed piece, Martin Wolf of the Financial Times notes that U.S. budget deficits have allowed the  private sector to deleverage a bit: “If the public sector does not sustain spending as the private sector  cuts back, the latter will go too far, causing unnecessarily deep damage to the economy.” He contrasts the U.S. situation with the crisis in the United Kingdom and Spain, where deleveraging has not gone as far. He points out that Spain’s lack of a sovereign currency has prevented its government from helping along the private-sector deleveraging process.