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Before we get too smug about Britain’s economic recovery, we ought to remember that we’re not the only G7 nation that’s staged a remarkable turnaround.

America, too, is on the front foot – bringing spending under control while growing its economy. Ambrose Evans-Pritchard of the Telegraph lays out the facts:

“Spending by the US Federal government has seen the steepest drop as share of national income since demobilisation after the Second World War.

“Claims that President Barack Obama is bankrupting America with a lurch towards hard-Left statism are for tabloid consumption only. Outlays have fallen from 24.4pc to 20.6pc of GDP in five years. Spending is roughly in line with its 40-year average. This fiscal squeeze has been achieved without driving the economy into recession or a Lost Decade, a remarkable feat.”

Admittedly, America’s budget deficit is on a par with that of the Eurozone, but as Evans-Pritchard points out the “huge difference” between the two economies is that the latter is stagnant, while the former is “expanding fast enough to outgrow its debts.”

What has America got that the Europe hasn’t? Well, apart from the small matter of political coherence, the US has benefited from two big advantages.

The first of these is the shale revolution:

“Francisco Blanch, from Bank of America, estimates that shale gas and oil have given the US economy an extra tailwind worth 1.9pc of GDP – what he calls the ‘energy carry’ – with effects rippling through the chemical and plastics industries…

“The US transferred more than $3 trillion to oil exporters from 2001 to 2008. That chapter is closed. The US is back to where it was in 2000 with an energy deficit well below 2pc of GDP and improving every month, while the eurozone is at -4.4pc and getting worse, and Japan is at -6.3pc.”

The second big advantage is a lightening of the debt burden on American households:

“US household debt has plummeted from 98pc to 81pc of GDP in four years. The ratio of debt payments to disposable income fell to 9.9pc in March, the lowest since the Federal Reserve’s modern data series began in 1980.

“The numbers of mortgages in negative equity have dropped to 19.4pc from 31.4pc two years ago… Over 4.8m households have been liberated.”

This process has been helped along by a legal and cultural context that allows hopelessly indebted individuals to default and move on. Evans-Pritchard contrasts this approach to the European situation:

“America’s bankruptcy doctrines evolved with the injustices of colonial debt servitude still in the collective mind…

“Much of Europe still clings to late Medieval notions of debt sanctity, with laws to match, though a spate of suicides is forcing reform. In Spain the banks can sieze all your current and future assets if you cannot pay the mortgage… Leaving aside the morality of state coercion to uphold the interests of creditors alone, this practice is inefficient. It blocks the cleansing process of boom-bust cycles, trapping economies in excess debt.”

In terms of debt forgiveness, Britain is more like America than Europe; but on the energy side of the equation Britain is no nearer to realising the benefit of its shale resources than anywhere else in Europe.

Nevertheless, despite the lack of an ‘energy carry’, Britain is growing faster than America – especially since the latest quarterly figures showing UK growth of 0.8% while the US economy suddenly slowed down (possibly due to a savagely cold winter). Furthermore, the British economy has done especially well on creating private sector jobs.

Still, despite these complications, Britain and America stand together as countries that have managed to combine austerity with economic growth – in clear contrast to the Eurozone economies that sadly haven’t.

9 comments for: What has America got that Europe hasn’t?

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