With the US facing significant economic challenges of its own, it is easy for it to overlook the impact of the so-called “Great Recession” on the rest of the world. In today’s interconnected marketplace, however, economic problems in foreign countries can have major political ramifications for the rest of the world. Just as the Great Depression contributed to the rise of authoritarian regimes in Europe, today’s economic downturn could lead to the destruction of the American-led liberal order if the negative repercussions of the crisis cannot be contained.

One of the most prominent trouble spots in the global economy is Greece. The government’s massive and rapidly expanding debt burden has raised concerns that the nation might be forced to declare bankruptcy. In light of this danger, the US ought to take action to resolve Europe’s internal dilemma. It should push for measures to contain the crisis while preventing similar situations from arising elsewhere.

Greece’s default would be disastrous for the United States. It would threaten to reverse the nascent global economic recovery and work to destabilize the European Union. If Greece defaults on its loans, investors will likely lose confidence in other European countries with high debt ratios, raising borrowing rates to prohibitive levels. This would create a vicious cycle in which those countries would then find it much more difficult to finance debt, which could possibly trigger further default. Unfortunately, numerous obstacles exist to a potential EU-orchestrated bailout. There are legal and practical questions to deal with, as well as political considerations. Already, public officials in other EU nations, most notably Germany, have publicly voiced skepticism about whether to intervene in Greece, citing the high costs associated with such a step.

After several agonizing months of uncertainty, it seems as though most countries have emerged from the depths of the economic collapse that ensued following the 2008 financial panic. US GDP expanded by 5.7 percent in the third quarter of 2009, while Europe has witnessed slowing rates of decline, and in some cases, including Great Britain and France, even modest growth. The response undertaken during the crisis by Western leaders, most notably US President Barack Obama and UK Prime Minister Gordon Brown, was extraordinary, combining bank bailouts with expansionary fiscal and monetary policies.

While these remedies appear to have succeeded to a degree, they came at an enormous cost; both the United States and Great Britain now face budget deficits in excess of 10 percent of GDP. If the economy enters what experts have dubbed a “double-dip” recession, in which the initial recovery is followed by a second downturn, it is unlikely that governments will be able to intervene on the same scale as they did during the initial phase of the crisis, owing to insufficient resources and public hostility. The US spent $800 billion on last year’s economic stimulus package while the Federal Reserve drove interest rates to record lows. Incurring more debt through, for example, another stimulus package would further risk the long-term financial stability of the United States. Thus, it is imperative that the United States and its allies maintain the current fragile, uneven recovery, or they will be doomed to suffer a protracted period of economic underperformance similar to Japan’s “Lost Decade.”

With so much depending on the revival of Western economies, any potential obstacle to the achievement of that goal must be removed. Greek insolvency would not only bring its own economy to a grinding halt, but could also have a domino effect. Many other members of the European Union, including Spain, Portugal, Italy, and Ireland, are also coping with excessive debt levels incurred by rampant spending over the past decade and sharp drops in revenue owing to the recession. In spite of EU rules requiring that budget deficits not exceed 3 percent of GDP, the lack of any effective enforcement mechanism, combined with “creative accounting,” has allowed profligacy to go unpunished. Already, confidence in the Euro has plummeted, causing its relative value to drop. Concern about the future of the common market could lead Eastern European nations, such Estonia, Latvia, and Lithuania, to rethink their planned entry into the Euro Zone, while strengthening the appeal of “Euroskepticism.” Critics of the Euro have long argued that a monetary union would lead to this kind of a crisis; now, their warnings appear to be vindicated.

A weakened EU is not an outcome that would be favorable for the United States. Although American and European politicians have their differences on some issues, a strong, unified Europe is in the United States’ best interest. As the US combats the complex and pressing questions of international terrorism, nuclear proliferation, human rights abuses, trade negotiations, Third World poverty, and environmental degradation, it is important to have a partner capable of assisting in its effort to provide global leadership. A weak and divided Europe cannot fulfill this role if it is plagued by economic disunity and decline.

To this end, the United States ought to play an active part in preventing Greek default. It should lean heavily on France and Germany, the EU’s economic powerhouses, to orchestrate a bailout that includes strict austerity conditions, cutting spending and raising interest rates, along the lines of International Monetary Fund standards. A major US diplomatic campaign, with the active involvement of President Obama, can display the vitality of this issue. Greece needs more than a band-aid solution; it needs a complete overhaul of its economic system. For years, Greece has run deficits well above EU limits. Rampant corruption and wasteful spending have brought the country to its current juncture. Even today, in the midst of the crisis, intransigent public sector unions have organized street protests in Athens and elsewhere, demanding immunity from the severe repercussions of fiscal austerity.

Critics contend that past interventions that imposed austerity have had disastrous consequences. While this did occur in the short term in some cases, such as the Asian economic crisis of 1998, in the long run, budgetary restraint is the only way to set countries on the path toward sustainable growth, as opposed to a temporary expansion followed by yet another crisis. Countries such as Thailand, Indonesia, and South Korea, all of which accepted IMF loans in the late 1990s, rooted out corporate mismanagement and other practices that inhibited productivity, and the result was protracted economic expansion over the course of the past decade.

Like the countries of East Asia, Greece cannot be given a bailout without strings attached because it will create a problem of moral hazard, allowing Spain, Italy, and Portugal to continue their prodigal ways in hopes that they too will be protected. Instead, they should be following the example of Ireland, which in recent months has introduced tough reforms designed to control its budget deficit, including sharp pay cuts for civil servants. Although controversial, these measures have been largely accepted by the Irish public, as they acknowledge that the short-term pain of austerity is preferable to continued financial turmoil. Hopefully Greece will demonstrate a comparable degree of responsibility in dealing with its dire financial situation.

US involvement is crucial to ensuring that a rescue package is formulated and organized according to the principles of austerity. France and Germany are hesitant to offer assistance, but could be persuaded if the United States emphasizes the importance of the Greek situation to the global recovery and the perils of allowing the crisis to spread. Such an approach will reap vast rewards for the US and its allies in the form of increased economic growth and greater geopolitical stability. For these reasons, President Obama ought to make securing aid for Greece a top priority.

During the 2008 presidential campaign, Barack Obama vowed to “restore America’s standing in the world.” With this pledge, he sought to distinguish himself from George W. Bush, who many believed had alienated the United States from the rest of the world during his two terms in office. Thus far, Obama can claim only limited success in turning the tide of international opinion. In part, this is because the alleged damage to the American image done by Bush was not as great as Obama and other Democrats claimed. But in spite of significant efforts to reach out to global audiences, he has yet to make substantial progress in improving ties with America’s allies. His failure suggests that international popularity is a difficult objective to achieve, and one that is not likely to be worth the costs it entails. Rather than seeking this chimerical goal, Obama ought to shift the focus of his foreign policy toward the advancement of America’s security and economic interests.

Examining the history of America’s interaction with the rest of the world provides context for the actions of the Obama administration. Hand wringing about America’s image abroad dates back to at least the 1960s, and has intensified in recent decades. Cold War era conflicts, such as the Vietnam War and the nuclear arms race, drew massive protests in Europe. In the aftermath of the downfall of the Soviet Union, observers derided the U.S. as a “hyperpower,” a critique that encompassed not only America’s political moves, but also its economic and cultural might in an increasingly globalized, unipolar world.

Tensions between the U.S. and its traditional allies mounted in 2002 when Bush announced his intention to invade Iraq, a campaign he planned to launch unilaterally once the UN refused to endorse it. European leaders, most prominently Jacques Chirac of France and Gerhard Schroeder of Germany, denounced America’s behavior as aggressive, echoing a sentiment expressed by an overwhelming majority of European citizens.

Yet, as in the past, America’s partners maintained a schizophrenic attitude toward their benefactor. For all its faults, America offered protection for European countries that had largely demilitarized in the years since World War II. Hence, whenever an outside threat appeared on the horizon, all talk of a post-American world suddenly vanished, and the transatlantic alliance appeared to be just as strong as ever. This was the case in the summer of 2008, when Russia’s invasion of Georgia inspired fear in the hearts of European publics. In response, their leaders quickly modified their stance to reflect closer alignment with the U.S. on issues such as missile defense shields in Poland and the Czech Republic.

Even as America saw its ratings decline under Bush in what Defense Secretary Donald Rumsfeld dubbed “old Europe,” the story was different elsewhere. The U.S. continued to enjoy favorable relations with the countries of the former Soviet bloc, who still remain thankful to the U.S. for defeating their former communist oppressors. Several Eastern European nations, most prominently Poland, contributed troops to the U.S. mission in Iraq. Ties with rising powers in Asia, such as India and Japan, improved on Bush’s watch, as demonstrated by a series of joint military exercises as well as a landmark nuclear treaty with India. These bonds appear likely to remain strong even with the recent election of the Democratic Party of Japan, which has occasionally indulged in anti-American rhetoric, but has also announced a commitment of $5 billion for the reconstruction of Afghanistan, a critical U.S. priority. Humanitarian aid to areas afflicted by poverty, disease, and natural disaster won plaudits among the President’s harshest critics. In Latin America, where populist politicians like Hugo Chavez gained ground throughout the past decade, local issues such as income disparity far outweighed the role of anti-American grandstanding in determining their success.

As has been established, America was by no means universally unpopular on the eve of President Obama’s inauguration. Nevertheless, during the campaign, Obama frequently sounded the theme of America’s deteriorating reputation abroad. To indicate that reversing anti-American sentiment was one of his top priorities, he sought to portray himself as a global citizen in a way that is perhaps unprecedented in American history: by emphasizing his multicultural background. He addressed an enormous, cheering crowd in Berlin during a tour of Europe and the Middle East in July 2008, and met with foreign leaders who demonstrated their eagerness to work with him.

The contrast between Obama and Bush became immediately apparently in the first few months of Obama’s presidency, as he began to overturn policies that, in the past, have incited denunciation of the U.S. Fulfilling a campaign promise, he issued an executive order mandating that the Guantanamo Bay prison be closed within a year, a directive that later ran into logistical problems. He renounced the use of torture against terrorist suspects. In speeches to foreign nations, he extended his criticisms of America to include unsavory elements of its history, such as mistreatment of immigrants and minority groups, and heavy-handed interventionism during the Cold War.

All of these measures represented an attempt to “reset” America’s relations with the rest of the world. Various missteps, however, have tarnished that campaign. Obama was criticized for being deliberately rude to British Prime Minister Gordon Brown, one of America’s closest allies, during Brown’s visit to Washington. Meanwhile, in the Middle East, Obama’s goal of achieving peace between the Israelis and the Palestinians has been set back by his frosty relations with hawkish Israeli Prime Minister Benjamin Netanyahu, who has refused Obama’s demand to halt settlements in the West Bank.

Discontent with Obama’s foreign agenda has grown in recent months. An article in the German publication Der Spiegel noted that his new approach to international relations has not worked. European powers remain reluctant to provide significant military support for the U.S. occupation of Afghanistan. French President Nicholas Sarkozy has been particularly adamant in criticizing Obama’s perceived weakness in negotiations with Iran, whose pursuit of nuclear weapons poses a threat to the entire world. China and Russia both continue to exercise their influence as regional powers, and have largely ignored the outreach undertaken by Obama and Secretary of State Hillary Clinton.

How can Obama reverse course in his quest to revitalize America’s image? To begin, he should seize every possible opportunity to find common ground with America’s allies on issues such as human rights. When he decided against meeting with the Dalai Llama in October, the President aroused suspicions that he would not be as sympathetic to human rights concerns as his predecessors, all of who met with the exiled Tibetan leader during their administrations. His endorsement of the so-called “Green Revolution” in Iran, in which citizens took to the streets to protest the fraudulent re-election of President Mahmoud Ahmadinejad, was seen as less than enthusiastic. In this matter, he should take the advice offered by Chief of Staff Rahm Emmanuel—“never let a crisis go to waste”—and apply this doctrine to international affairs. Renewing Bush’s emphasis on development and democracy promotion could also help to reinforce the notion that America is a benevolent hegemon.

Trade is another area in which Obama could positively impact both America’s image and interests. Here, he has backpedaled from Bush’s pro-free-trade stance, imposing tariffs on Chinese tires, inserting “Buy American” provisions into the stimulus bill and the “Cash For Clunkers” program, and allowing agreements with South Korea, Colombia, and Panama to languish in the Senate. Such actions hurt the odds of resurrecting the Doha Round of international trade negotiations, which broke down last year. Ever since the end of World War II, removing barriers to global commerce has been a key goal of the U.S. and its allies. Free trade not only contributes to long-term economic growth, but it also ensures closer ties between nations, and thus reduces the possibility of conflict. If Obama were to repudiate his previous positions and commit to reviving the Doha Round, he would remind the world that America is capable of providing global leadership on these sorts of seemingly intractable problems.

But ultimately, Obama must acknowledge that America’s image is a compilation of so many factors, most of them out of his control, that changing it within a short span of time would be an impossible task. Indeed, on some issues, seeking international approval could be detrimental to America’s best interests. Anti-terrorism policy is one example. Measures that have drawn the ire of foreign leaders, including harsh interrogation techniques, extraordinary rendition, and detention facilities such as Guantanamo Bay, are also an important line of defense against future attacks.

The best route to follow lies between the extremes of the Bush era and the early months of the Obama presidency. America’s allies have a lot to offer in the way of diplomatic support and international prestige, and can lend legitimacy to its military ventures. They should not be ignored or marginalized. At the same time, their true concern is security, and if America can no longer ensure their safety, Europeans and others will look elsewhere for protection. Obama needs to balance conciliation with displays of toughness, while employing his personal appeal to rally support for shared causes such as human rights and nuclear non-proliferation. If he takes these steps, he will be able to cultivate increased respect for America abroad without sacrificing its interests.

With an abundance of foreign events to capture our attention, Americans have largely overlooked the earth-shattering results of Japan’s August election. For only the second time since World War II, the conservative Liberal Democratic Party (LDP) lost control of Japan’s Diet. Instead, 42.4% of the public chose to rally behind the Democratic Party of Japan (DPJ), led by Prime Minister Yukio Hatoyama. His pledge to reverse Japan’s economic decline and reevaluate its longstanding partnership with the United States represents a dramatic shift from his staunchly pro-U.S. predecessors.

Japan is an economically strong and politically valuable ally in East Asia because it shares U.S. interests in advancing human rights and disarming North Korea. Washington should therefore improve its relationship with Tokyo by cooperating on the countries’ shared policy goals, maintaining its commitment negotiate the presence of the U.S. Marine base in Okinawa, and supporting Japan’s aspirations to join the UN Security Council.

At first glance, the DPJ victory would appear to put the U.S. at risk of losing one of its most reliable allies. Hatoyama advocates detaching Japan from the U.S. and its foreign conflicts, while remedying injured relations with neighboring countries. Realistically, the U.S. should expect less cooperation from Tokyo on a few key issues such as the Japanese Navy’s refueling mission in the Indian Ocean and maintaining a U.S. airfield on the island of Okinawa.

Nonetheless, new directions in Japan’s foreign policy could prove beneficial for both countries in the long run. Under new leadership, Japan could assume a more active role in fostering stability in East Asia by cultivating closer ties with other East Asian nations.

According to Gilbert Rozman, a professor of sociology at Princeton University and an expert on Japan, Japan’s postwar foreign policy goals have been threefold. It has focused on maintaining the alliance with the U.S., developing positive relations with its neighbors, and acquiring a more significant role in international institutions such as the United Nations. In the past, these policy goals tended to conflict, with one improving at the expense of the others.

Such was the case over the last decade. Former Prime Minister Junichiro Koizumi prioritized strengthening ties to the U.S. by cultivating a close personal friendship with the former President George W. Bush and offering non-military assistance to the U.S. in Iraq and Afghanistan. Bush reciprocated this friendship in 2006 by pledging support for Japan’s (ultimately unsuccessful) bid to acquire a permanent seat on the United Nations Security Council.

Japan pursued its relationship with the U.S. and a stronger role in the UN at the expense of distancing itself from its East Asian neighbors. Koizumi’s provocative acts, including visiting the Yasukuni Shrine—home to the graves of many leaders who have been judged as war criminals—angered China and South Korea. Growing Chinese nationalism spawned widespread anti-Japanese protests, fanned in part by a campaign undertaken by Koizumi and his successor that appeared to whitewash the Japanese army’s atrocities during World War II. It is in light of this troubled history that Hatoyama hopes to regain the favor of its East Asian neighbors. Japan’s neighbors welcomed his announcement that he will not visit Yasukuni.

In light of Japan’s history and its important geopolitical position, President Obama should send a clear signal that Japan’s new focus on strengthening ties with its neighbors need not dent the friendship between the U.S. and Japan.

That means reassuring Japan that the U.S. remains committed to disarming North Korea whose nuclear arsenal is a direct threat to Japan’s security. Hatoyama, along with his Chinese and South Korean counterparts, have recently urged the resumption of the Six Party Talks with North Korea, which also involve the U.S. and Russia. Obama, for his part, has levied sanctions against North Korea in response to its missile tests in April and has made continuation of the Six Party Talks a precondition for further bilateral negotiations.

When it comes to political conflicts between the U.S and Japan, Obama will have to pick his battles. With the possibility of a troop surge in Afghanistan, the Japanese refueling mission is likely to remain an essential component of American military expeditions in the Middle East. The Okinawa base, on the other hand, is not as crucial to foreign missions. The nearby U.S.-controlled island of Guam offers a convenient alternative location that both serves U.S. purposes and satisfies the Japanese government. Recognizing the possibility for compromise, the military already has plans to shift some of its forces there beginning in 2014. Reaching agreement on Okinawa may allow the U.S. to bargain for Japan’s continued commitment to assist the U.S.-led war on terror. Hatoyama’s recent pledge of $5 billion in reconstruction aid to Afghanistan suggests that he is willing to support the global security objectives of the U.S.

Obama and Hatoyama can also strengthen their relationship by working together on international issues, such as human rights and climate change. The DPJ has vowed to slash Japan’s carbon emissions to 25% below 1990 levels in the next decade, a step up from previous targets. Such a cut could spur other developed nations to adopt similar measures, particularly the U.S., where Obama’s proposed cap and trade bill faces strong opposition in Congress. Collaborating on this initiative would reinforce the notion that Japan is a friend of the United States and thus alleviate the salience of anti-American sentiments espoused by the Japanese left.

A more assertive and neutral Japan can be positive for the U.S. as well as Japan. The two states still have many historic, economic, and political connections, as well as shared policy outlooks regarding regional security threats, such as North Korea. The Obama administration should invest both the time and the political capital necessary to strengthen the U.S.-Japan alliance as part of its broader efforts to maintain East Asian stability and security.