Mark Twain famously observed that history does not repeat itself but it does rhyme. Considering how Europe's sovereign debt crisis is playing out, one has to be struck by Mark Twain's prescience. For the European sovereign debt crisis bears an uncanny resemblance to the 2008-2009 U.S. financial crisis.

In 2008 Barack Obama was propelled into office largely by a financial crisis. The main difference between then and now will be that this crisis did not originate in the US, but in Europe. And it will be one over which President Obama has no control.

As has been generally understood and underscored by Standard & Poor's downgrade of the U.S.'s AAA credit rating, elected officials were willing to push the federal government to the brink of default. This was startling proof of deep dysfunction in the political process.

Europe’s current debt crises are a consequence of a region-wide crisis of the welfare state, whose vast promised benefits voters demand, yet are unwilling to finance through self-taxation.

The European sovereign debt crisis is now entering a critical phase, which U.S. economic policymakers would be ignoring at their peril. And if there is one thing that policymakers should have learnt from the Lehman fiasco it is that a banking crisis in a major part of the global economy can have serious economic and financial consequences for the rest of the world economy.

Legislation to raise the debt ceiling will give the government headroom to operate until 2013. But a temporary ceasefire in this fiscal war will not address the country's longer-run problems. The rating agencies are therefore justified in reconsidering America's triple-A credit rating.

An escalation of the European debt crisis would pose a real threat to the U.S. economic recovery.

In May 2010, the European debt crisis forced the European Commission to abandon its earlier "no bail out" policy and establish a massive safety net for the European periphery. But by the end of November, 2010, markets demanded record high interest rates on the European periphery's sovereign debt.