America versus europe - which is the bigger threat to the world economy

Over the past few days, the U.S. has been in the world's crosshairs. Political bickering in Washington produced a debt agreement widely criticized as insufficient and incomplete. Standard & Poor's downgraded America's credit rating, raising concerns about the health of the world's most important economy. Slow growth in the U.S. is threatening the entire global recovery. Stock-market turmoil on Wall Street has turned markets from London to Seoul into volatile roller coasters. It is easy to be angry at the U.S. for the world's economic ills right now. Perhaps the sentiment was summed up best by a recent headline in Chinese newspaper the Global Times: "The World Should Kick America's Butt."

Yes, the U.S. has been a source of much uncertainty in recent days. But in my opinion, the real danger for the global economy lies elsewhere: in Europe. If we're going to have another financial crisis, chances are it will start in the euro zone, not Washington. Here's why:

On a macro level, you could say the U.S. is worse off economically than Europe right now. Economists were frantically reducing their 2011 growth forecasts for the U.S. as its GDP limped along in the first half of the year. In Europe, growth is holding up. The IMF raised its growth projection for the euro zone in late June to 2%. And as a recent HSBC report noted, the state of American national finances is actually more feeble than the euro zone's (taken as a whole):

Even before the financial crisis, the (U.S.) fiscal path was unsustainable: an ageing population combined with extravagant social security commitments suggested either the need for massive tax increases or draconian spending cuts. The crisis, however, made matters a lot worse. According to the OECD, the US federal, state and local government deficit (NOT the federal deficit alone) jumped from 2.9% of GDP in 2007 to 10.6% in 2010. Excluding debt interest payments and adjusting for the economic cycle, the so-called primary deficit rose from 1.5% to 7.0% of GDP, the biggest in the world. And the ratio of debt to GDP jumped from 62.0% to 93.6%. The eurozone is nothing like as bad: an average deficit of 6.0% of GDP, a primary deficit of 1.1% of GDP and a debt/GDP ratio about the same as America's but rising nowhere near as quickly.