With the plunge in global markets coming on the heels of the U.S.’s credit downgrade, it seems like the world’s financial problems all trace back to the U.S. But in reality, the eurozone debt crisis is the real time bomb fueling global anxieties. “Europe is about to blow. There is no longer any question of standing still or hoping the U.S. will kick-start the global economy,” says Harvard economist Kenneth Rogoff in Rana Foroohar’s latest cover story. The impact of Europe’s downfall — whether through a breakup of the eurozone or more costly bailouts — will be felt across the world, writes Foroohar:
Europe is the lagest trading partner of both the U.S. and China. It’s home to the world’s largest pool of wealthy consumers. If they stop buying our stuff, everyone suffers. Meanwhile, a dramatic depreciation of the euro or a dissolution of the union would make nations from Asia to Latin America that hold the euro as a reserve currency much poorer.
What’s happening in Europe is symbolic of the changing global order. In the wake of the global financial crisis, rich-country economies aren’t rebounding, which makes their debt problems seem evermore unshakeable. Even countries like Britain, which quickly swallowed the bitter pill of deep budget cuts to confront crippling debt and fend off rising borrowing costs, aren’t escaping the pain of suffering populations and violence in the streets. Read more in this week’s cover story.