Monday 27 January 2003

Why Bush is sunk without Europe

by Will Hutton

When the stock market falls for a record 10 consecutive days, as it just has done, you take notice. Falls like these are usually the portent of something bad, even calamitous, ahead. The worry is obvious; Bush's intentions on Iraq could have potentially disastrous economic repercussions.

The US's economic position is far too vulnerable to allow it to go war without cast-iron multilateral support that could underpin it economically as well as diplomatically and militarily. The multi-lateralism Bush scorns is, in truth, an economic necessity. America may be a superpower that spends more on defence than the next nine countries combined and is preparing to increase defence spending this year by an enormous $48 billion, equivalent to Britain's entire defence budget, but it is a strategic position built on economic sand.

On latest estimates, its net liabilities to the rest the world are more than $2.7 trillion, nearly 30 per cent of GDP, a scale of indebtedness associated with basket-case economies in Latin America.

Its industrial base is so uncompetitive that it consistently imports more than it exports; its current-account deficit, the gap between all its current foreign earnings and foreign spending, is now a stunning 5 per cent of GDP, continuing a trend that has lasted for more than 25 years and which is the cause of all that foreign debt. As a national community, it has virtually ceased to save so that government and individuals alike live on credit.

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