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Published: Wednesday, 2/10/2010

EU's economic problems adversely affect the U.S.

THE pickle that the European Union is in as Greece, Ireland, Italy, Portugal, and Spain stagger with debt has negative implications for the United States.

As this country grapples with continuing high unemployment, rising national debt, and a Congress and White House seemingly incapable of clearing the way to measures that might alleviate these problems, having Western Europe in economic straits is not to our advantage.

For the health of the global economy, it is better that our European allies are solid. Even though the United States owes most of its overseas debt to the Chinese, Japanese, and Arabs, it is comforting to be able to borrow from the Europeans.

Probably a worse European-related problem for the United States is the weakening of the euro against the dollar, which allows European exports to gain an advantage over America's.

This is unfortunate when one of President Obama's prescriptions to improve U.S. economic health is to increase exports.

The developments that have plunged some European Union members into perilous straits are similar to those that have stalled the United States.

Greece may be in the worst shape, but its situation is not unique. It has indulged in deficit spending that, for its size, is terrifying in terms of the country being able to repay its loans.

The Greek government has systematically lied to the EU about the extent of its deficits and level of debt. The world normally thinks of failing states that default on their loans to be in such places as Latin America or Africa, not in Western Europe.

The fault for Greece's plight, magnified by the global recession, lies in various places.

The first is in Athens. Any government that borrows too much is asking for disaster.

Second to blame is Brussels, the headquarters of the EU. Though everyone in Europe saw this coming, what was missing was the courage to blow the whistle on the Greeks and put the heat on them to be responsible.

The third set of guilty parties consists of those who loaned the Greeks money, knowing their creditworthiness was low but believing that someone would bail them out if they couldn't pay.

What other country runs big budget deficits and cloaks its true financial picture in promises to cut deficits and national debt in the future? And in the name of party politics, what other country's legislature refuses to pass measures that might put the country's finances on more solid ground? I must be thinking of Eritrea.

Where the situation in Europe differs from America's is that our federal government has the Federal Reserve Bank and other instruments to rescue government, banks, and financial houses if they get into trouble.

The European Central Bank has no such tools at its command. The political structure of the European Union is weak. It is in no position to crack the whip on national governments whose fiscal policies are irresponsible.

The bank's president, Jean-Claude Trichet, can lecture, exhort, and even criticize governments. He can neither lend them money nor punish them.

Unlike the U.S. Federal Reserve, the European bank cannot buy government bonds or provide money to banks.

There is a decent argument that because the big, fat American financial houses managed their assets so badly that they risked failing in 2008, the federal government should have let them go down with a thump rather than saving them with billions of taxpayer dollars.

Maybe the best way for the EU to deal with crooked, leaky governments such as Greece's is let the Greeks sink.

Though it might be unpleasant to watch, such crashes can be educational. Salvation from their own folly by France, Germany, the Netherlands, and other, more responsible European governments might discourage errant states from changing their ways.

On the other hand, there was the unsaved, bankrupt Weimar Republic that preceded Nazi Germany.

Tough call.

Dan Simpson, a retired diplomat, is a member of the editorial boards of The Blade and Pittsburgh Post-Gazette.

E-mail dsimpson@post-gazette.com



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