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European debt crisis: Does Obama get how serious this is?

Europe's debt crisis appears to be getting worse, yet American leadership is absent. How many times will America turn away from Europe only to return to it at great cost?

By Heather A. Conley / January 20, 2011



Washington

Europe’s debt crisis is more significant than you think and apparently more significant than the Obama administration thinks, because America’s voice and leadership at a time of dramatic change on the Continent are strangely absent. Either we are unaware of this change or we do not wish to influence the outcome; both possibilities are unacceptable.

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How many times will America turn away from Europe only to return to it at great cost?

Beyond urgent bailouts and stock-market gyrations, Europe’s ongoing crisis is spawning large and violent riots in major European capitals, high unemployment, creeping authoritarianism in some governments and shaky coalitions in others, the rise of nationalism and extremism, and population expulsions.

1.4 trillion reasons

Such turbulence should be sufficient to motivate US engagement on this issue, but there are 1.4 trillion other reasons why America has serious skin in Europe’s game: $1.4 trillion represents the estimated amount of European debt that American banks currently hold.

The size and scope of US-European economic ties is often underestimated. As America’s largest external creditor, Europe currently holds more than nearly $3 trillion worth of US Treasuries. Last year, the total global output of US foreign affiliates was more than $1.2 trillion, with over half of the total originating in Europe.

At the end of 2008, US corporate investment in Europe was almost four times greater than its investment in Asia. Europe is America’s largest trading partner, and it purchases 21.4 percent of American exports.

Conventional wisdom suggests that US foreign policy interest in Europe is very “yesterday,” as America focuses its economic and political energies on China and other emerging economies. Washington’s enthusiasm for Europe may have waned, but China’s interest and engagement in Europe is surging, illustrated by this month’s European tour by Chinese Vice Premier Li Keqiang. Curiously, it is not Europe’s closest ally and friend, the United States, which is sending encouraging public messages about the economic crisis; it is China.

Beijing is purchasing large quantities of European debt (a $7.8 billion purchase of Spanish debt announced recently) and being awarded strategic investment opportunities. It is China that is using some of its newly gained economic leverage in Europe for political purposes. Perhaps if China continues to focus on Europe, the United States once again will become more interested in the Old Continent.

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