GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

PARIS — European leaders dodged yet another volley of bullets this week in their ongoing debt crisis. Greek Prime Minister George Papandreou survived a parliamentary no-confidence vote.

That followed a highly controversial, last-minute agreement on new bailout funding for Greece by the French and German governments.

But the Greeks have little reason to celebrate. Their parliament must still approve a new set of austerity measures by the end of June to qualify for that funding from their European partners and the International Monetary Fund. The details of that bailout remain to be hammered out.

On top of that, they now have problems in Washington.

There is growing skepticism in Congress about the IMF’s participation in European bailouts, thanks, in part, to the American public’s increasing unwillingness to pay attention to problems overseas.

With Americans mired in two costly wars, buffeted by high unemployment, and weighed down by their own debt, the newfound isolationism is not surprising.

But it could prove a grave mistake, both economically and strategically. Tending to problems at home will not protect the United States from the undertow created by an imploding European economy. And surrendering America’s role as Europe’s backstop will open the door for China to play the role instead, a development Washington could regret.

Europeans have bungled the euro crisis from the beginning. “Europeans have not applied the first lesson of crisis management,” Ted Truman, a senior fellow at the Peterson Institute for International Economics, recently observed. That lesson is to “use overwhelming force in the form of policy actions and necessary financing to convince markets that the problem has been addressed.”

Nor have Europeans applied the second lesson of crisis management, Truman added, which is that “ownership is everything.” Put another way, European leaders haven’t yet acknowledged that they face a euro crisis rather than just a Greek crisis and need to deal with it collectively.

Under the circumstances, Americans can be excused if they don’t see this is as their crisis, either. They would just like the world to stop so they can get off. According to a recent Pew Research Center survey, 58 percent of Americans think that “the United States should pay less attention to problems overseas and concentrate on problems here at home.” This is up from 49 percent in 2004. The isolationist sentiment has become particularly prevalent among conservative Republicans (up 19 percentage points) and independents (up 13 points).

It should not be surprising that in mid-June, Sens. Jim DeMint, R-S.C.; Orrin Hatch, R-Utah; David Vitter, R-La.; and John Cornyn, R-Texas, proposed to block the IMF from bailing out European countries with additional funds that Congress made available to the institution in 2009.

“Now is not the time, when Americans are struggling to find work and have budget problems of their own, to tap innocent American taxpayers in order to bail out profligate European governments,” said Hatch. 

The IMF does not need the money right now. It probably won’t need it unless the euro crisis dramatically widens and deepens. Nevertheless, it’s dangerously shortsighted. Washington has a huge financial stake in resolving the euro crisis. American banks have $1.3 trillion in outstanding loans in Europe, according to the Bank for International Settlements. Europe is America’s largest trading partner, accounting for 22 percent of U.S. merchandise trade exports. Europe is the largest destination for U.S. foreign investment, and it supplies 57 percent of the earnings of U.S. corporations’ foreign affiliates.

But the biggest danger posed by Europe’s financial turbulence is psychological. When Lehman Brothers went bankrupt in 2008, financial institutions stopped lending out of fear of what might come next. In April, bond-market panic over Greece caused the volatility index of U.S. stocks to reach its highest level in months and might have stalled the U.S. recovery. That could happen again.

And Washington turning its back on Europe also poses strategic concerns. Europe has other options if the United States would somehow block IMF help. Beijing sits on $3 trillion in foreign-exchange reserves and has already offered to buy Greek debt. Such loans would not come cheap, and the price wouldn’t just be financial. It would also have implications in the trade-, foreign-, and security-policy realms.

Both the Bush and Obama administrations have found Europe an increasingly willing partner in taking on China over theft of intellectual property, state subsidies, and discriminatory government-procurement practices. Can such cooperation continue if Beijing becomes Europe’s creditor?

Moreover, Washington complained loudly a few years ago when Europe toyed with the idea of lifting its long-standing embargo on the sale of arms to China. Urging restraint might prove more difficult in the future if China has saved the European economy from implosion.

Europe has mishandled the euro crisis from Day One. And the United States has reason to insist that it get its act together. But turning its back on Europe would sabotage American interests