Few experts deny that the eurozone crisis threatens the global economy. A messy unraveling of the euro would have ferocious effects on countries that export to Europe and could produce a global liquidity crisis that would stifle growth -- even in countries with little direct exposure. For these reasons, International Monetary Fund (IMF) Managing Director Christine Lagarde has become increasingly apocalyptic in her pronouncements, warning yesterday that the crisis may trigger a repeat of the 1930s economic contraction.
In the face of this crisis, there is a remarkable reality: The world's undisputed economic and financial leader, the United States, is essentially an observer. Unless the current trajectory changes, the crisis will play itself out in discussions between European leaders.
To be fair, the United States has been an active -- even frenetic -- bystander. The Obama administration is clearly alarmed by the course of events, not least because an implosion of the euro might tank the global economy just as the U.S. election approaches. Treasury Secretary Timothy Geithner has toured European capitals on multiple occasions, hectoring leaders and finance ministers about their responsibilities, offering advice, and serving as an informal mediator. His peregrinations have often earned him the annoyance of European finance ministers, but Geithner has persisted. The administration's involvement has reached even higher; the president himself has repeatedly buttonholed key European leaders in an attempt to engineer a breakthrough.
The vigorous hortatory role cannot mask the reality that the United States is not willing to put new money on the table to address the crisis. The consistent U.S. position has been that Europe has the resources it needs and that only political will is lacking. At the Cannes G-20 meeting last month, the United States reacted coolly to talk of a massive increase in IMF resources and insisted that the organization has all the tools it needs. In the weeks that followed, the United States hasn't budged from the position that a resolution is, above all, a European responsibility. At most, the United States seems willing to countenance an IMF role as a junior partner.
At a certain level, the American position is indisputable. The crisis is Europe's making and it can and should be resolved by Europe. But the knowledge that Europe is most guilty will be cold comfort if, as now appears likely, its leaders fail to construct the short-term firewall essential to calm the markets and stop the upward spiral in borrowing costs. Last week's European summit in Brussels made progress on addressing the euro's critical architectural flaws but did little to construct that firewall.
We have reached the point where outsiders can no longer fuss and fume about Europe's political and institutional shortcomings. The critical question is not whether Europe is to blame but whether outsiders can step in where Europe has failed. The world must do so, but it cannot without much more assertive American leadership.