The US must agree to give greater financial support to Europe’s troubled economies if they are to exit this recession.
Those who believe that the shaky American economy will not be affected by the current European crisis or contend that its effects could be manageable for the Unites States, probably underestimate the risks behind a possible uncontrolled default within the eurozone. Some months before the upcoming presidential elections, the American President seems to be affected by how Republicans are reacting to what is happening in Europe and their shortsighted view to this problem. Though President Obama has often urged European leaders, especially German Chancellor Merkel, to take quick and bold decisions to resolve the eurozone crisis, the US itself has done less than expected to help Europe. There are many voices inside the American political system, coming mostly from the Republican camp, saying that the country cannot provide Europe with more capital than has already been given via the International Monetary Fund’s (IMF) bail outs to Greece, Spain and Portugal. Unfortunately, the White House seems to share these views with its spokesman, David Carney, who declared many times that “Europe has the means to confront this crisis”.
Does Europe actually have the “means” to make it by itself? Unfortunately not. More and more European countries – first and foremost, Germany – are unwilling to put their hands deeper into their pockets to lend to the countries that are in trouble. Moreover, as long as the European Central Bank avoids the launch of a more “relaxed” monetary policy and agrees to print money to boost the eurozone’s economy, the firewall that European leaders are trying to build against this crisis will be weak and inappropriate in terms of what markets are expecting from them. A potential collapse in the eurozone will imply catastrophic effects for the indefensible American economy. A possible Greek default will open the way for many other European countries’ defaults. By far, nobody knows where the funds required to support much bigger economies than the Greek, like the Italian or the Spanish economies, will be sourced from, unless the IMF agrees to increase its capital exposure to the eurozone. The discussion opened at the G-20 last November remains unresolved and no decision has been made. It is time for the US to undertake a more determinant role in combating the European financial crisis by deciding to throw more capital at Europe, through the IMF.
With reference to Greece, the US has demonstrated a significant solidarity to the Greek people and recognized their efforts through the austerity measures imposed by the country’s government. At the most critical point of the negotiations between Greece and its European partners (for the new bailout package that the country needs to avoid an uncontrolled default), the Secretary of the American Treasury, Timothy Geithner, declared the US’ political support for Greece. Over the last two years, during which Greece has become the epicentre of this financial crisis, the US has always expressed in public its confidence in the country.
However, are these public statements of support the upper limit of what the US can do during these crucial moments for European economies? Undoubtedly not. As the most trusted economic and political partner of Europe, the US would be expected to draw and implement a long-term plan to boost growth in Greece similar to what happened many decades ago with the Marshall Plan to restore European economies after World War II. Despite its problems of huge deficits and sovereign debt, America is still the only economic power that could help Europe restore and stabilise its economic environment. By investing American capital in eurozone countries such as Greece, the US could contribute to European efforts at overcoming this crisis, creating growth, and reducing the high unemployment levels.
This European financial crisis will be unbeatable unless the US decides to actively get involved. In addition to publicly stating its support, the US must act on its words by helping Europe close its funding gap.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.