America has a huge debt. But Europe has the bigger debt problem

America’s government debt has passed $40 trillion, a milestone that has prompted questions about how long bond markets will continue funding its persistent budget shortfalls. In Europe, the news has brought a measure of schadenfreude after years of being told that the continent’s economy was falling behind America.

At first glance, the figures seem to favour Europe. Government debt across the European Union totals €15.7 trillion, or $18.2 trillion, in an economy not much smaller than the United States. Two decades ago, both sides had debt-to-GDP ratios of roughly 65%. America’s ratio has since climbed above 120%, and the International Monetary Fund expects it to exceed 140% by 2031. Europe’s stands at “just” 83% and is expected to remain broadly flat.

But the headline numbers conceal a crucial difference. The United States borrows as a single union, with the entire country standing behind every federal dollar owed. In Europe, most borrowing is carried out by 27 separate member states, each responsible for repaying its own debt. That leaves the European Union, or at least the euro zone, only as strong as its weakest link, as Greece’s past threat of default demonstrated.

Several EU countries have manageable debt, including Germany and its northern neighbours. Greece and Spain carry heavy debt but have enough growth to reassure bond investors. France, however, has neither fiscal room nor convincing growth. Its debt equals 118% of GDP, while the economy recorded growth of 0% in the most recent quarter. That combination makes France the French-sized problem at the centre of Europe’s debt position.

America still has important advantages, including the world’s reserve currency and a growing economy. So Europeans tempted to lecture Washington about fiscal management may want to hold back. The larger debt pile belongs to America, but the more exposed structure belongs to Europe.