The U.S. is slightly better situated, says Tim Hoyle, director of research at Haverford Investments. Despite the recent credit downgrade by Standard & Poor's, the U.S. dollar remains the reserve currency and treasuries continue to be considered a safe haven. But the resilience of the U.S. economic recovery hinges on growth as well. "If we can grow this economy, big debt issues become small debt issues," Hoyle says. "Europe is tackling everything through austerity because they have given up the ghost on growth. They're taking a much stricter line on austerity, [but] austerity measures don't translate into pro-growth initiatives."
In essence, the pendulum has swung severely to the other side of the spectrum in Europe, a move that could cripple prospects for growth and end up making the debt problem worse. "The U.S. is at a crossroads," Hoyle says, "If you go down that road of strict austerity, we don't grow, and if we don't grow we will never be able to handle the debt and the promises Congress has made."
Corrected 8/17/2011: A previous version of this article misstated the term sterling gilt.