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Europe, United States dealing with debt crisis in different ways

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BERLIN, GERMANY (WITI) -- Debt has been a signature issue of Wisconsin Congressman Paul Ryan, and he's been warning that if the United States doesn't deal with its borrowing and spending, we could face a crisis like the one that has kept Europe in deep recession for five years. FOX6's Mike Lowe traveled to Europe this summer to explore how both Europe and the United States are dealing with debt.

The Brandenburg gate in Berlin is the old dividing line between the East and the West, and it may also be a symbol of the different ways the United States and Germany deal with debt.

Since the crash of 2008, a gulf as wide as the Atlantic has divided European and American economic policy. The debate boiled down to austerity versus stimulus.

While Americans spent billions of dollars to kickstart spending and create jobs, Europeans chose austerity -- deep spending cuts and huge tax increases, leading to massive demonstrations in Spain and Greece.

The policy of austerity, many economists say, has kept the continent in a sustained recession that continues to this day -- breeding unrest and distrust among many people who see their social safety net unraveling.

Four years after the crash, when Wisconsin Congressman Paul Ryan was running for vice president, on the ticket with Mitt Romney, he repeated a message over and over.

"We see a debt crisis coming.  We know that of you follow what Europe is doing, you'll get the same results, and here's the bigger problem: they call it austerity.  What it means in Europe is current seniors are seeing their retirement benefits slashed, they're cranking up their taxes, and young people coming out of school in Europe have no opportunities," Ryan said.

So what exactly led to Europe's financial meltdown?

Part of the answer is that some countries in Europe borrowed a lot of money -- much more money than they could realistically ever pay back, and have lost control of their finances.

The crisis threatens Europe's single currency system.

Greece, Portugal and Ireland have had to seek emergency bailouts, with their governments agreeing to deep spending cuts before the loans were approved.

The debt problems in small countries could impact markets around the world, and have exposed big divisions between Europe's weaker economies and its powerful ones.

"It's like 27 different people trying to organize the same checkbook," San Diego State Professor Ron Bee said.

Now, the debt issues of countries like Italy, Ireland and Greece -- all of which owe more money than their entire economies produce. Those issues could end up affecting the global economy, and one country's default could have the Domino effect.

Markus Kerber is the CEO and Director General of the Federation of German Industries -- essentially the voice of Germany's business community. He has family in Grafton, so he knows the effect of European debt can reach from the shores of the Atlantic to the shoreline of Lake Michigan.

"The chain reactions are totally uncontrollable, therefore we need to make sure the European debt crisis, which is confined to five or six countries does not spread like a virus to other parts of the banking system around the world, and we do not want a banking crisis in Greece to let a bank trip over in Milwaukee. That would be terrible," Kerber said.

In Germany, the Deutsche Bundesbank, the German Federal Reserve Bank plays a key role in efforts to prop up the entire European Union.

The debt crisis has drained some of the continent's economic power, with Germans providing the bailout money, but insisting on austerity -- which has come with a price of its own.

"If you see the data, austerity works. The problem with austerity is it works less fast than democratic procedures, that might elect you out of your position," Karsten Stroborn, head of analysis in the Markets Department said.

Stroborn says to some extent, the debt crisis has ultimately become a crisis of democracy.

Ryan says his budget plan in the U.S. is aimed at avoiding European austerity -- not imposing it.

"What we're trying to do is pre-empt and prevent austerity, so when people suggest what people like me are suggesting is austerity, it's actually quite the opposite," Ryan said.

Economic problems are most severe at this point in southern Europe, where unemployment rates can top 25% and can approach 50% for younger workers, but people in northern Europe are also concerned.

That's what FOX6's Mike Lowe found in the postcard city of Heidleburg, where university students are worried about finding work.

"I don't think that it will be better in the future," 20-year-old Laura Langschmidt said.

Germany's retirees are just as worried.

"I would like the Deutsche Mark to be reintroduced. With the Euro, it's not working. That's my opinion. I read in the newspapers that many countries live above their means, or simply spend too much money. Germany must close itself off to that. It's very bad," Bernhard Grune said.

That's why Ryan is arguing so strongly for reforming the major drivers of U.S. debt.

All of that stimulus and bailout borrowing worked to keep the U.S. afloat in hard times, but with the debt clock ticking ever higher, the country's debt reckoning is coming.

"The whole premise of what I've been trying to do for the last five years is to see this coming and prevent it from happening and make changes to these programs for younger people, so we have time to adjust, so we don't have to change people in or near retirement. That's why we want to get ahead of this problem to prevent a European-like debt crisis from ever happening here in America," Ryan said.

After World War I, governments responded to economic crises with austerity, and ended up losing their democracies.  Both Europe and the United States hope not to repeat those mistakes.

It is worth noting that the United States is imposing its own form of austerity right now -- the deep cuts of sequestration.

Some economists warn that unless Congress acts to make "smart cuts," rather than indiscriminate cuts, the U.S. recovery could be slowed or reversed.

Either way, Congress is bracing for the looming shutdown over the debt ceiling coming in September.

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