Consider two groups of two countries each, one from the eurozone (dashed) and the other not (solid), and let's compare their fates, considering their debt, public deficit and growth record.
Solid blue country is Japan, with has a starring level of debt (as %GDP), higher than debt of the dashed blue country from 2000. Dashed blue line is a eurozone country under bail out and strong austerity measures from 2009: Greece.
Solid black country is UK, and it also has an higher debt than dashed black country. The dashed black country is Spain, presently under strong pressure from the markets.
In both cases the eurozone countries have lower levels of debt, but they are under strong pressure from markets. This shows that the eurocrisis has not very much to do with debts. Neither with deficits, if you compare the performances of the four countries: Japan has run huge deficits for a long time, and Spain has surplus just before the crisis (2008).
What about the prospects for growth? Japan record has been much worse than Greece. UK and Spain growth histories have been very similar.
Under the usual EU narrative, both Japan and UK should be under austerity policies and strong pressure from markets, much worse than those suffered by Greece and Spain. But they are not. Their fates are very different.
What makes the difference? Eurozone and currency ownership. Both Japan and UK manage their own currencies and their central banks have the needed tools. But Greece and Spain do not.
Japan could not be an eurozone country due to its high deficits and low growth.
But both Japan and UK are not in risk of the sort of crisis and collapse that is affecting eurozone countries. Life is possible with high level of national debt. But not in an monetary union where countries do not control the currency of its own debt, and where there is no last ressort bank neither common sharing (mutualization) of debt.
(Update, 19 may: see Martin Wolf post in his FT blog:
- Members of a monetary union issue debt in a currency over which they have no control. It follows that financial markets acquire the power to force default on these countries. This is not the case in countries that are no part of a monetary union, and have kept control over the currency in which they issue debt.
- Yet bonds of eurozone member states do have default risk, since in effect, they borrow in a foreign currency, as have many emerging economies in the past.)
- In my view, Spain made only one big mistake: joining the euro. Without that, it would probably now look more like the UK: yes, the economy would be in serious trouble, but its exchange rate and its long-term interest rates would both be far lower.)