Can the US save itself by saving Europe?

Once there was a saying: “If the United States sneezes, Europe catches a cold.” At first, the 2008 crisis proved that saying. However, after a short time, it was understood that although there were some similarities, Europe’s economic problems were more serious and somewhat different. So it is better now to say, “Europe sneezes and the U.S. is afraid to get sick.” Or as International Monetary Fund head Christine Lagarde recently pointed out, the risk of contamination from the Greek and European problems has already begun to spread to other parts of the world, and the Americans do not want to catch a cold that originated in Europe amid their struggles to heal their own domestic maladies.

Perhaps for that reason, President Barack Obama sent the Treasury Department’s undersecretary for international affairs to Europe to put pressure on leaders to reach a compromise to calm the crisis without further delay. This means that the European problem has begun to hurt the American economy – presenting a serious political risk for the president on the eve of elections.

The problem is whether this attempt was late and what the U.S. can contribute in solving the European problem beyond putting pressure on the leaders and giving advice – advice that those leaders already know about but cannot follow through on mainly due to political reasons. The obvious answer to this question is “not much” or, more correctly, “nothing” in the material sense.

The recently revealed figures on the U.S. economy are not encouraging. Growth was slower than expected during the first quarter of this year. The job market growth is also very modest. Sales are sluggish and corporate profits are slowing down. Consumer sentiment remains below the historical average. And there is no great enthusiasm for new projects. All these naturally limit the dimensions of the American contribution to European salvation.

It is understood that the American administration prefers the direct recapitalization of the European banks from the continent’s rescue fund instead of forcing troubled nations to borrow from the fund for the same purpose. They think that their way can be more effective in calming the fear of probable bank runs, especially in Spain and some other countries. The other advice is, of course, to unleash the lending capacity of the European Central Bank.

The main concern of the American administration, as well as some institutions, is the probability that the European banking system will blow up if uncertainty appears after the forthcoming Greek elections, which could result in the country’s exit from the eurozone.

Even if the new, post-election government supports staying in the eurozone, it will be almost impossible for Greece to meet the terms of the current bailout from the European Union and the International Monetary Fund due to political and practical reasons. The country obviously needs more, and only the U.S., the largest shareholder in the IMF, can play an important role for this purpose.

The problem is the negative attitude of the American business community because of the uncertainty in Europe. This might amplify the negative impacts of a new European crisis on the American economy and might create a vicious cycle by further limiting the size of American help to Europe. These concerns are forcing all governments to prepare for the possibility of a second round of the global crisis. However, to be realistic, it must be accepted that some governments, voluntarily or involuntarily, will not do that. This will be harmful not only for their economy but for all countries as well.

Another important point is the negative impacts of old and possibly new economic problems in the political atmosphere that have already emerged in many democratic Western countries. The political leaders of those countries are most probably aware of the rise of extreme political tendencies in their countries, mainly because of increasing poverty and unemployment. The famous historian and pioneer of science fiction, H.G. Wells, once remarked that although it was the best political regime, there was no guarantee for eternal democracy; anytime and anywhere, demagogues could easily put an end to democracy by promising to solve the common people’s problems – a phenomenon witnessed not long ago in Europe.