OLD EUROPE IS RIGHT ON STIMULUS

When the European Union (EU) established the euro in 1999, it put in place strict limits on deficit spending and debt-to-gross domestic product (GDP) ratios. Those limits have not been universally honored within the currency bloc, but there's a reason they're there.

For decades, countries like Greece, Italy and Belgium had run up huge national debts trying to pay for social-welfare programs and keep their economies afloat at the same time. The chief result of these policies was a huge pile of IOUs:

• In Italy, the national debt stood at 107 percent of GDP in 1999.
• In Belgium and Greece it was 104 percent; Greece's fiscal house was so disordered that it was excluded from the first group of euro countries.

So from its founding, the euro zone insisted that countries not respond to every economic downturn by piling up debt. Budget deficits are supposed to be limited to 3 percent of GDP, and total debt to 60 percent of GDP.

U.S. debt stood at 36 percent of GDP at the end of 2007 -- before the financial panic and stimulus started piling it on. The United States has run up $1 trillion in publicly held debt in the past six months alone -- that's 7 percent of GDP right there. [and our deficit now at 12%]

READ MORE

image toon - 1st mny sclm bbro - Bear market says 'let's try stimulus plane E'