Europe showing inclination to address its fiscal challenges

The European economy — and by extension, the world economy — still faces years of challenge ahead,

But as of this writing, there were encouraging signs that agreements reached Friday during a European summit in Paris have at least bought everyone some time.

The most important thing to come out of the summit was an agreement that European governments would commit to balanced-budget laws and tougher scrutiny of their spending by European Union officials.

It may be simplistic but worth noting anyway that some of the lessons being learned in Europe today are on the horizon for the United States.

The Associated Press noted that mushrooming debt and high borrowing costs forced Greece, Ireland and Portugal to take bailouts from other eurozone countries. But Italy and Spain are regarded as too large to bail out — and a default would mean another financial crisis.

Across the pond, the take-away from that should be that the United State has no choice but to address its growing deficit because no one is going to be in a position of bailing out this country.

Europe is also coming to realize that its problems are not only tied to its profligacy, but to its lack of growth. And therein lies the rub.

If governments cut back too severely in an effort to balance budgets, they risk sliding into a recession.

Working for a balance

Achieving the balance between cuts, spending and revenue will be an incredible challenge in Europe. But just as Italy and Spain are too big to bail out, failure to reach a balance is too frightening a prospect to contemplate.

And, again, politicians in Washington should take appropriate notice.

It was almost a year ago that Alan Simpson, the former U.S. senator from Wyoming, and Erskine Bowles, former White House chief of staff to President Bill Clinton, headed a commission that was aiming for a plan that would produce $4 trillion in deficit reduction through a combination of spending cuts and tax increases.

Some members of Congress rejected the commission’s recommendations on the grounds that it was the job of Congress, not a commission, to make such decisions.

During the summer, President Barack Obama and House Speaker John Boehner, an Ohio Republican, talked briefly about an equally ambitious plan that also would have been a combination of spending cuts and revenue increases. What came out of that failed effort was the plan for a congressional supercommittee, which would pursue a much less ambitious goal.

And only a few weeks ago, the committee failed to reach agreement on how to reduce the deficit by $1.3 trillion over 10 years.

When a host of European nations can work toward making the kind of difficult decisions that elude our Congress, we may be in deeper trouble than we realize.