At the end of the first decade of the 21st century, the members of two advanced monetary and economic unions, the nations of the Eurozone and the U.S. states, experienced debt crises with spreads on government borrowing rising dramatically: in a short period of time, Californian spreads rose six-fold, Italian rose ten-fold, Illinois fteen-fold, and Portuguese twenty-five-fold. Despite the similar behavior of spreads on public debt, these crises were fundamentally dierent in nature.
In Europe, the crisis occurred after a period of signicant increases in government indebtedness from levels that were already substantial, whereas in the United States, state government borrowing was limited and remained roughly unchanged. Moreover, whereas the most troubled nations of Europe experienced a sudden stop in private capital flows and private sector borrowers also faced large rises in spreads, there is little evidence that private borrowing in U.S. states was differentially affected by the creditworthiness of state governments. In this sense, we can say that the US states experienced a public debt crisis, whereas the nations of Europe experienced an external debt crisis affecting both public and private borrowers.
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