The Great Triangle Drama: The Euro Zone Debt Crisis, the U.S. Fiscal Cliff, and Chinese Growth Prospects

Abstract

ABSTRACT In early 2013, Europe's leaders argued that the euro zone had weathered the worst of the sovereign debt crisis. In reality, the euro zone crisis is far from over as evidenced by intense friction over austerity policies and soaring unemployment, controversial monetary policies, an inadequate liquidity cushion, impending insolvencies, a banking crisis, and the erosion of competitiveness and innovation. The United States faced a fiscal cliff arising from the convergence of bipartisan polarization over the debt ceiling and the deficit-cutting plan, the Bush tax cuts, automatic spending cuts, the continuing resolution, and unemployment benefits. In China, President Xi Jinping and Premier Li Keqiang will support market forces, while seeking to ameliorate vast income inequities. Beijing's challenges require prudent macroeconomic management, containment of local debt, and shifts in the growth models of local governments. In the great triangle drama, Washington must overcome its fiscal challenges as the e...