Greece, the European Union and what they mean to the US 

‘The Greek Way” no longer has quite such splendid implications for many. This is the title of a best-selling book on ancient Greece by Edith Hamilton, published in 1930 and reissued in 1957. She was one of the most visible public advocates of the classics of the 20th century, and her influence continues to resonate.

Today, for most people this phrase immediately conjures up the European financial crisis centered in Greece. The extended uncertainty regarding prospects that the European Union will provide essential financial underwriting to that nation threatens to break the euro, the common currency used by most — though not all — member nations of the confederation.

The grief of the Greeks has dominated international economic reporting, even overshadowing the notable news that the Nobel Prize in economics has been awarded to Thomas Sargent of New York University and Christopher Sims of Princeton University. The two scholars focus on how expectations influence behavior, a perspective directly germane to crisis management.

Given the interconnectedness and integration of the global financial system, failure of other nations in the EU to support their debt-burdened partner could touch off another slump, perhaps even a major crisis. Events in Europe could duplicate those in the United States of several years ago, when apparently limited housing industry losses quickly became massive through contagion.

The now long-term European financial problems were initially sparked by the collapse of the housing and associated financial derivatives markets in the United States. The resulting severe recession on both sides of the Atlantic has left behind widespread losses and persistent high unemployment. Fed Chairman Ben Bernanke’s latest testimony before Congress that we may be on the brink of another recession adds anxiety.

These complex challenges reinforce the role of Germany, which has the strongest national banking system and the largest economy in Europe. Chancellor Angela Merkel has proven effective in juggling contentious interests at home, including strong nationalist currents, while building coalitions among the broad diverse membership of the European Union.

General structural features further reinforce Germany’s influence. First, since World War II, the U.S. dollar has been generally convertible. Growth of dollar holdings overseas reduces money supply control by the U.S. Federal Reserve, while expanding global American influence. Informed estimates of dollars in circulation directly controlled by the Fed range from 20 percent to one-third.

With the dollar a world currency, the relatively new European currency provides a tool to coordinate financial management by governments while facilitating regional trade and investment.

Second, strong government regulation is essential. In retrospect, irresponsibility was fed by abolition in the U.S. in the late 1990s of the Glass-Steagall Act, which segregated commercial banking from other financial services. Germany and other nations in Europe were more inclined to keep regulations in place.

Arthur I. Cyr is Clausen Distinguished Professor at Carthage College in Kenosha, Wis.

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