Essay: Global Economy Key Player

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[. . .] S. needs its strong financial system. Under the current approach to oversight, this means that bailouts of the financial system are necessary to preserve the health of the nation's economy. There is the risk that economic catastrophe here will compromise the rise of American values around the world

Preservation of the international order is another key interest of the United States in this situation. Harmony within the Eurozone countries is key to harmony within the European Union. If there is a perception that some nations within the zone are not being treated fairly, and the euro collapses, such an event could destabilize Europe. More pressing than the political order is the economic order. The European Union and Eurozone represent two of the most important partners in global trade. It is important that the EU maintains its integrity as an economic unit, and that depends on successful resolution of this sovereign debt crisis. As Reich notes, escalation of the sovereign debt problem would result in wholesale calamity in the global financial markets. This in turn would weaken both the United States and Western Europe politically, both things that could challenge the international order, which to this point remains based on strength among Western nations. China's rise in world affairs, for example, has occurred in the past few years as its economy has grown and those of Europe and the U.S. have stagnated. Part of the motivator for the U.S. To become involved is that there is risk of American decline should another financial catastrophe strike so soon after the last one

. It should be remembered that China has stepped in as creditor nation frequently around the world in the past ten years, in order to boost its power. Chinese influence in Western Europe would not be an optimal outcome. As economic advisers, we wish to remind both Congress and the White House that there is an important link between political stability and economic well-being, and that the preservation of the current world order depends on maintaining stability and economic prosperity in both the U.S. And in the European Union.

This leads us to the final and most import national interest, which is economic prosperity. In 2008, a contagion destroyed a tremendous amount of wealth and brought the global economy to a halt. The EU and to a lesser extent the U.S. are still in the process of recovering from this event. A default by Greece would precipitate a similar, and probably larger crisis in the global economic system. A new recession would begin, arguably one that is stronger than the one we just recently escaped. Further, the recession would be powerful enough that it would be almost impossible to get out of. The Federal Reserve is already maximizing stimulus, so there is little to give in the way of monetary policy to avert a recession. The current Congress seems utterly incapable of dealing with anything productive, much less averting recession. Thus, if a Greek default starts the process of recession in Europe, it will spread to America quickly, and there will be very little that government can to do address the situation

. The action that the White House and Congress need to take is here and now, encouraging Europe to avoid such a financial catastrophe in the first place. The American GDP would shrink and industrial production would be reduced. It needs to be remembered that GDP is an important tool for international diplomacy -- the threat of reduced economic performance is a powerful motivator

. A ruin of the American financial system, complete with defaults of major banks, would result in a prolonged recession perhaps many years in length, and resulting in the loss of millions of American jobs, in addition to industrial capacity

The fact that the American economy could be so severely affected by Greek default is something that the U.S. takes seriously. It is in the country's best interest to protect American prosperity. If the Eurozone, the European Central Bank and the European Union cannot bring this issue to an adequate resolution and avoid Greek default and its domino effect on the global economy, the U.S. is going to have to pursue measures to protect itself from such contagions in the future. Good governance on the part of European leaders is essential to the world financial system, and the U.S. will need to ensure that these leaders understand that responsibility, and that there are important external stakeholders in this issue, the United States specifically.

Courses of Action

There are few direct courses of action that the U.S. can take with respect to this issue. The decision-makers lie within the European Central Bank and the government of Germany. The U.S. does have limited ability to exert some influence over these bodies, however. The influence should be focused primarily on the preventative measures that need to be taken to avoid Greek default. Only some energy should be devoted to developing a contingency plan to manage the fallout from a Greek default, but the majority of the effort should be put on diplomacy to ensure that German and other European leaders know that they have the support of the United States. It is also worth considering that these leaders understand the full ramifications of a potential collapse. There are opinions that a Greek default would, in fact, not be catastrophic

. However, there is no point in downplaying the risks here, because to do so would increase the risk of this situation having a negative outcome.

Diplomacy should be conducted on all fronts. One thing that the White House in particular needs to handle is ensuring that European leaders understand the level of support that they can expect from the United States on this issue. Another is that the European leaders should receive input from the U.S. In terms of understanding the full range of risks. It is critical that European leaders do not think of this strictly as a European political issue but as a global economic issue. Transforming that thought requires a comprehensive diplomatic and informational response. At the end of the day, U.S. bank exposure to Greece may be indirect, but it is significant. If Europe blows this, there is strong risk that the U.S. will be forced to pass legislation that will severely curtail the strong cross-border banking relationship. This relationship has strengthened both the U.S. And Europe, but if it continues to result is massive economic disruption, the U.S. will be forced to take a more protectionist stance, and also to adopt more conservative banking principles, both of which will harm Europe in the long run.

Finally, the U.S. needs to support Greece in particular. While Germany is a critical player as the financier of Greece and other troubled Eurozone economies, Greece is as well. Greek politicians are under fire, literally, from frequent protests at Syntagma Square outside of the Greek parliament building in downtown Athens. The Greek government is highly unpopular because of its complicity in austerity measures that have had a devastating effect on the Greek populace, and because of its inability to curtail the tax evasion among the rich that lies at the heart of the Greek crisis. Those lost revenues are critical, and it is important for the Greek government to know that there are ways the U.S. can help as key power broker, using its skills in coalition-building to guide the Europeans to the right combination of austerity and support

. The U.S. can finalize the trade deal with the EU, which would help Greek businesses. Further, the U.S. can authorize consultants to help the Greek government to close tax loopholes and improve enforcement practices. The U.S. can also consider becoming a lender of last resort for Greece, either directly or through the International Monetary Fund. The U.S. can also use its influence to win support among other European nations such a Great Britain to lend their assistance. The objective of this course of action will be to ensure that Greece has the support it needs to enact the necessary austerity measures, to improve its tax base and to rebuild its economy, so that once the height of this crisis is avoided that the issue does not arise again.

Issues of the Entire Region

While many different countries are involved in this crisis individually, the region as a whole has a high degree of interconnectedness through the EU and other bodies. The U.S. needs to work with these supranational bodies as well as with specific national governments. Further, the U.S. must push in trade talks with Europe about the need for controls on speculation between their respective banking sectors. At this point, there is a need to maintain flows of both goods and capital, but this crisis is made more dangerous by unfettered speculation and derivatives purchasing between the two regions. It is difficult for unilateral legislative action on the part of the… [END OF PREVIEW]

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Global Economy Key Player.  (2013, October 29).  Retrieved May 20, 2019, from https://www.essaytown.com/subjects/paper/global-economy-key-player/9844037

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