America Braces for European Economic Fix

There's not much U.S. leaders can do but sit and watch while Europe struggles with its debt.

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Americans are used to turning to the U.S. government to fix their economic woes. And although the budget standoffs and dueling jobs plans of the past year have resulted in little more than a 9.1 percent unemployment rate and snail-paced growth, Americans still expect their own president and lawmakers to deliver. But, now, with the worst threat to the global economy occurring offshore, there's not much U.S. leaders can do to stop it.

Indeed, although its consequences could grind America's weak recovery to a standstill, Greece's debt dilemma and a possible economic breakdown in Europe are not crises that U.S. leaders can run in and solve--or even pretend to. So, according to economic experts, though U.S. officials have already tried to help, the best they can do is wait as European leaders devise a solution on their own soil. "What does the United States do? Well, we keep our fingers crossed," says Robert Lawrence, an international trade professor at the Harvard Kennedy School of Government. "It's an unusual thing for the United States to think it can't solve every problem in the world, but this is one of them."

[Read: Rick Newman: What Will Happen if Greece Defaults.]

Leaders of the 27 European Union nations are meeting in Brussels to finalize an emergency plan to forestall potential catastrophe as a result of Greece's portentous debt. In addition to trying to prevent a Greek debt default—which could already be imminent due to internal opposition to austerity measures in the country—leaders are expected to propose a way to protect other vulnerable countries, namely Portugal, Ireland, Spain, and Italy, from the effects. Europe will also have to bulk up their now 440 billion euro bail-out fund, the European Financial Stability Facility, to cover potential losses of a Greek default around the continent. European banks must also raise additional funds, through recapitalization, to guard them against losses in countries that hold Greece's debt. If Europe is unable to stop the crisis from spreading beyond Greece, it's only a matter of time before the United States feels the effect of a European meltdown. U.S. exports could take a major hit as demand in Europe declines and the euro decreases in value. Also, the U.S. financial system's exposure to European banks could cause even more of a downward spiral.

[Read how the crisis in Europe could drag down the United States.]

It's also unclear that Europe will commit to fixing some of the structural problems that make the Eurozone so vulnerable to a default in the first place. On Tuesday, testifying to members of Congress at a House Financial Services subcommittee hearing, experts pointed out that the Eurozone, though connected monetarily, has lacked any sort of unified fiscal policy to prevent a major debt crisis in its member nations.. As it stands, fiscal measures need to be decided by 17 separate member governments, and Americans know well just how hard it is politically to make that happen in just one country. "There's not much one can do about a dysfunctional political union," Desmond Lachman, a resident fellow at the conservative American Enterprise Institute, told lawmakers. "I don't think you can expect an easy solution."

The Obama administration has already done much to advise and encourage a definitive fix, but with the United States' own political and economic troubles, its unlikely, says Lawrence, that any sort of U.S. bailout is possible. "Europe needs to take conclusive action to deal with these challenges. We believe they have the financial capacity to do so, and they need to act with the kind of political will that's necessary to get it done," White House Press Secretary Jay Carney said Monday.

[See our gallery of political cartoons on President Obama.]

So, until there's a definite and enforceable plan in place, U.S. officials are simply watching to see what happens in Europe. "They're saying a lot of the right things and they're clearly working on it and they're moving with a greater sense of urgency," Treasury Secretary Tim Geithner said Tuesday. "That's all welcome, but until we see what they come together with, it's a little hard to evaluate."