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.

On November 3, 2009, the European Union’s Lisbon treaty was at last ratified when the Czech president Vaclav Klaus ended his solitary opposition and signed the pivotal — if contentious—document, eight years in the making. Despite its roots in the 2001 Laeken Declaration’s pledge of a “more democratic, transparent, and effective” Europe, the Lisbon treaty’s passage is marked by some noticeably undemocratic qualities. Dating to its former incarnation as the more federalist “constitutional treaty,” which contained such proto-nationalistic elements as an EU anthem and a European “bill of rights,” the much-maligned Lisbon treaty was “agreed upon,” despite being rejected by three out of six referendums. Moreover, 10 governments backed down from their own promises of public votes. For the most part, this contention can be dissected as the struggle between the maximalist and minimalist factions of the EU: between those who argue for a more integrated Europe and those who are content with the current supremacy of certain member-states.

In light of the relatively small fanfare generated by the treaty’s final adoption, questions remain as to whether Lisbon will effect any palpable change and what it means for Europe’s future on the world stage. The Lisbon treaty aims at further European integration and can be taken as a political statement in support of a more interconnected Europe. For all the substantial political capital used to ensure the treaty’s passage, however, the maximalists have nevertheless won an empty victory. Consider current European Commission President José Manuel Barroso’s statement about the opportunity presented by the treaty: “Don’t expect miracles. Lisbon reinforces our capacity to act, but at least as important is our willingness to act.” Nothing better illustrates how politicized and inertial the current state of affairs has become than the highly conservative picks of Herman Van Rompuy, then Belgian Prime Minister, and Catherine Ashton, previously European Commissioner for Trade, to the new posts of European Council President and high representative of foreign policy.

In one view, this “capacity to act” was strengthened by the treaty’s “streamlining” and “simplification” of EU decision-making. In the past, one of the European Union’s main challenges had been its chronic inability to produce a foreign policy consensus among its 27 member states. In the vacuum of any overarching focus, its foreign policy conformed to the whims of specific members. The treaty’s creation of an EU president and foreign policy representative purports to address this problem. Furthermore, the use of frequently paralyzing unanimous votes has been abandoned in favor of majority rule in many policy areas, including migration, criminal justice, and judicial-police joint action. Additionally, Lisbon changes the voting mechanism in some zones to assign votes to member states based on their populations.

In contrast, some critics rightfully question the potentially troublesome sweeping powers of “co-decision” awarded to the still-unfamiliar European Parliament. These include approval of European Commission president and ministers along with partial oversight of the EU budget. The European Parliament now wields influence that is, theoretically, almost equal to the European Council. Many see this as a disaster, pointing to the fact that Members of the European Parliament (MEPs) are out of touch with their constituencies. Relatively few Europeans vote for MEPs, and, as a recent article in The Economist noted, many Europeans do not even know who represents them. From farm subsidies to immigration, some fear that the Parliament will initiate an ill-advised legislative voting spree on narrow democratic mandates. An already prickly co-existence between the European Council and the Brussels-based European Commission will now be tested by the accommodation of another, even more unaccountable body.

Despite supposed policy improvements, no guiding European foreign policy exists. With the lackluster appointments of Belgium’s Van Rompuy and Britain’s Lady Ashton, EU leaders have confirmed that they are content to exert influence only within Europe, rather than on the world stage. The EU has missed a unique opportunity to utilize the Lisbon treaty to redefine a global Europe, which was—in theory—its most significant aim. Business continues as usual, with balance-of-power concerns and the prioritization of national interests leaving the EU with only a secondary role in world affairs. Granted, Mr. Van Rompuy is an avid Atlanticist, but as he has been prime minister of Belgium for less than a year, it is doubtful that he will “turn heads” in Washington, Beijing, or Moscow the way that a more prominent figure like Tony Blair could have. As British Tory leader David Cameron has observed, Van Rompuy is not “president of Europe.” He is a narrower, “chairmanic” figure rather than a promising sign of unified European diplomacy. It was Van Rompuy’s modest stature that garnered him the outsized support of Germany and France.

Lady Ashton was chosen for similarly dull reasons. When asked why she was selected, French president Nicolas Sarkozy replied, “It was felt a woman should hold a big EU job, because a center-left politician was needed to ‘balance’ Mr. Van Rompuy and because ‘our British friends’ wanted the post.” In fact, Lady Ashton was, at best, only the third choice of her own government. To be fair, Mr. Van Rompuy and Lady Ashton had both performed admirably in their previous roles. But this was neither the time nor the place to pick two relatively inexperienced political unknowns for the most public of EU positions, a weak start for a “new” Europe.

Some Euro-conservatives argue that a minimalist interpretation of the Lisbon treaty will actually benefit Europe. They would also argue against appointing a celbrity figure as either president or foreign minister because neither position is directly elected. As Financial Times columnist Gideon Rachman notes, “Ordinary Europeans would be justified in asking by what right the unelected Mr. Blair [for instance] speaks for them.” Yet Mr. Rachman also observes that European unity tends to crumble at moments of international crisis, indicating the necessity of Lisbon’s integrative measures. In principle, the treaty’s main objective was to endow Europe with the political heft to match its status as the world’s largest economy. In all likelihood, it is hard to envision America and China, or even India and Brazil, really respecting Mr. Van Rompuy and Lady Ashton. It is even less likely to imagine Russian Prime Minister Vladimir Putin doing so. During the South Ossetian War, Mr. Putin reserved no respect for even the European Union itself; its lack of a collective security or defense policy made it impossible for Europe to enforce its demands that Russian troops withdraw. In an international political landscape shaped by power interests, Europe needs the fullest potential of the Lisbon treaty to avoid becoming an international afterthought. Instead, this missed opportunity will cement the status quo of EU foreign policy being diluted by national governments. As Henry Kissinger once famously—if anecdotally—observed, “Whom do you call when you want to talk to Europe?”

While Europe searches for its voice, it will remain a spectator in a G2 world molded by America and China, as enunciated by British foreign secretary David Miliband. Admittedly, the European Union has been considered a triumph of diplomacy, having stabilized the Continent and made war unimaginable. In one sense, though, the European project’s success has led to the present difficulty of deciding how to project its considerable political-economic weight abroad. Europe, with the exhaustion following the Lisbon treaty and the lack of future direction it provided, will only gain international respect if it can harness the treaty’s potential and work toward a more maximalist EU.