US Debt Crisis Threatens European Economy with Weakening Dollar and Rising Borrowing Costs

The US federal deficit has more than doubled since 2019, reaching $1.9 trillion in 2024, and is projected to remain at this level in 2025. The national debt stands at $36.2 trillion (124% of GDP), raising concerns about a potential "debt spiral". A persistently strong euro could make European products too expensive for the US market, impacting eurozone exporters and slowing economic expansion, particularly for countries reliant on US trade.

The US federal deficit has more than doubled since 2019, reaching $1.9 trillion in 2024 and projected to remain at this level in 2025. This significant increase in the deficit has raised concerns about a potential "debt spiral," where rising interest payments on the national debt lead to further deficits, exacerbating the problem. The national debt now stands at $36.2 trillion, equivalent to 124% of GDP, adding pressure on the US economy [1].

The strong euro, which has appreciated significantly against the US dollar, poses additional challenges. European products may become too expensive for the US market, potentially impacting eurozone exporters and slowing economic expansion. Countries heavily reliant on US trade, such as those in the eurozone, could face reduced demand for their goods and services, potentially hindering their economic growth. The European Commission's spring forecast indicates that Romania's deficit is expected to reach 8.6% of GDP in 2025 without a fiscal package, highlighting the broader implications of global economic trends [2].

The Romanian government has recently approved a EUR 2.1 billion fiscal package to address its budget deficit. This package includes tax increases, spending reductions, and changes to health insurance contributions. While the package is a step towards fiscal consolidation, it falls short of the declared RON 35 billion (EUR 7.1 billion) target, which would bring the deficit to 6.8% of GDP if fully met [1].

As the US and eurozone economies navigate these challenges, policymakers will need to balance the need for deficit reduction with the potential negative impacts on economic growth. The European Commission's spring forecast suggests that further measures worth at least 0.6% of GDP may be necessary in subsequent packages to meet fiscal targets and maintain economic stability [2].

References:
[1] https://www.romania-insider.com/romania-govt-approves-fiscal-package-july-2025
[2] https://www.romania-insider.com/romania-govt-approves-fiscal-package-july-2025