Europe's sovereign debt crisis just got a bit bleaker today. Both Greece and Portugal's 2010 budget deficits came in worse than expected.
Greece was expected to ring up a deficit equaling 9.4% of gross domestic product. But when the finally tally was in, the country's actual deficit totaled 10.5% of GDP, according to Eurostat, Europe's statistics agency, which just released it annual debt figures for the Eurozone. And the country's overall debt climbed to 142% of GDP, a level not seen in over a decade.
As for Portugal, its deficit was expected to equal 7.3% of GDP, but came in much higher at 9.1%. The country has a total debt-to-GDP ratio of 93% and is very likely to be next in line (behind Ireland and Greece) for a bailout.
This news comes after Greece took drastic austerity measures as part of its bailout agreement last year to rein in its deficit and overall debt load, begging the question: Is austerity all it's cracked up to be?
The Daily Ticker asked the same question last month when the economic situation in the United Kingdom went from bad to worse. Like Greece, the U.K. also opted for austerity (albeit a preemptive strategy), which seemingly hurt its recovery and maybe even pushed the country back into recession. The U.S., on the other hand, kicked the can down the road and instead engaged in very expensive stimulus programs to jump-start the economy. (See: Does The UK's Lousy Economy Prove It? Were Paul Krugman And Keynes Right?)
But now with a Republican-led House of Representatives, including Tea Party members who ran on getting tough on the budget, the time has come for the U.S. to face its mounting year-over-year deficits head on. This year the U.S. deficit is expected to reach more than $1.5 trillion and the country is quickly approaching its current $14.3 trillion debt ceiling.
If you thought the debate in Washington over funding the government for the rest of the year got heated, just wait. (See: Shutdown Averted, Now the Real Battle Begins)
What do you think? Should the U.S. follow Greece and the U.K. down the road towards austerity?