The widening gap between the approaches adopted on both sides of the Atlantic towards mending the damage done by the economic crisis could not be more striking. On this side of the ocean, there is hardly a single voice advocating a credible plan to rein in federal debt, and trim the deficit meaningfuly. On the other side, U.K, Portugal, Spain, Greece, Germany, are already implementing austerity packages, and there is no debate on the urgency of the measures. What is the cause of this chasm?

The austerity camp in Europe is led by Germany. Angela Merkel, the German chancellor, has barely yielded an inch to the American point of view. She is supported vociferously by the E.C.B chief, J.C. Trichet, who, in a comment on Monday, even proposed the extraordinary measure of suspending the voting rights of member nations that fail to trim down their fiscal deficits below the 3% level stipulated in the Growth and Stability Fact. The most probable successor to Mr. Trichet, Axel Weber, the current head of Bundesbank, is well-known as even more of a hawk, and prone to making blunt comments about the necessity of austerity measures that Germany and other European nations must adopt.

The rest of Europe is not as enthusiastic about austerity, but there is a clear consensus that leaving public sector finances as they are, or even allowing them to deteriorate further, is not an option at all. By contrast, Tim Geithner, Ben Bernanke, Lawrence Summers, Paul Krugman and many others loudly blame the Europeans for spoiling their recovery plans. Mr. Krugman even compares European policy choices to the disasterous decisions of the 1930s, which, he argues, deepened the depression.

In our opinion, what Americans fail to understand is that this is a lot more than a growth or recession issue for Europe. When Tim Geithner speaks about about the risks to the budding global recovery, Europeans nod, but their minds are preoccupied with far greater matters than even the worst case scenario imaginable to Mr. Geithner would imply. The matter at stake is the survival of the Euro, and, by extension, of the European Union project itself. It is unthinkable to European politicians that a couple of members will be expelled, or be forced to leave the Euro voluntarily as a result of defaults on sovereign debt. How can one predict and weigh the spectrum of consequences that could arise in such a scenario, and how is it possible to expect Europeans to take such a risk lightly, which jeopardizes the 60-year long E.U. Project?

Tim Geithner, of course, sees mattersm from an entirely different angle. To him unemployment, bankruptcies, financial market turmoil, inflation are the issues at stake, and to combat them, it is only sensible to take a little(!) risk and splash a couple of a hundred billion dollars, since the USD is doing rather well at the moment, buoyed by risk sentiment, and a generally difficult economic environment. If California, Florida, Nevada, or some other state hard-hit by real estate crises, and the ensuing economic problems were to face default, nobody expects them to suddenly secede from the U.S. and issue their own currencies. But it is perfectly sensible to expect populist governments taking over in Greece, Italy, Spain, or any other of the nations in trouble, and breaking up the Euro, and plunging the E.U. into an unprecedented crisis which the E.U. Leaders would do anything to avoid.

That is why Europeans are so unwilling to widen their deficits in spite of the fact that their recovery, outside of Germany, is even more fragile than the American one. The German government is aware that the public may be unable to accept the next bailout package, but it will be easier to have it put up with a prolonged period of unemployment. In other words, making the electorate sign up to a direct bailout through cash handouts to the Greeks, Italians, or Spaniards of the Eurozone is a lot harder than making it swallow a stealth bailout through austerity measures, higher unemployment, and general misery. It is a political choice, in short, and not an economic one. That is why, once again, Americans find the European approach irrational and inexplicable from their growth-oriented point of view.

Of course, none of this means that the austerity plans will work. It may be that many governments will eventually avoid a confidence collapse through these measures, but it is far from clear that the destructive consequences of the policy of contracting economies and impoverishing people will not, in the end, create an adverse economic environment where social and political upheaval exposes the Eurozone to the danger of a breakup.

What the European measures do mean is that, with such a large portion of the world economy in tightening mode, the enormous amounts thrown around by the American government will achieve little more than a temporary growth boost, and a permanent increase to volatility, greatly disappointing the authorities, and forcing them to resume printing more money once the end result is better understood. The Euro, meanwhile, is on a continued downtrend, if only because of the huge uncertainties about the outcome of the adopted tightening policies. It will remain so, until the Federal Reserve is forced to initiate additional swap facilities, and new liquidity packages perhaps towards the end of this year, as turmoil, and chaos return to the markets in their full power.

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