What started as a smoldering hotspot has turned into a serious bonfire in Europe. This week, leaders of the 17 eurozone nations hope to create a big enough financial firewall before the flames grow into a raging inferno, threatening to jump oceans.
It may seem like America is well-protected against an economic meltdown in Europe. But don’t be fooled by the geographic distance. The European Union is a top trading partner of the U.S. Big American banks are heavily invested in the continent. And a European economic meltdown would strike a devastating blow to the already fragile confidence of U.S. consumers. Remember how the collapse of an American investment bank quickly spread and crippled the global economy?
Like many things in finance, the European debt crisis is a complex affair. But the root of the problem is simple: not enough money to pay the bills. Finding more money isn’t so simple.
That requires a growing economy, which has been missing from much of Europe.
Eurozone politicians have been busy jumping from one wildfire to the next -- Greece to Ireland, Portugal to Italy. Now the danger is undeniable, and leaders are left beating back the immediate threat before they can get to what fuels these flames. At this week’s European Union summit in Brussels, markets will turn on whether the leaders agree to fight fire with fire.
The immediate need is for money -- money to guarantee government bonds and money to buy government bonds. But in order to rebuild after the fire has been put out, Europe needs policies to reignite its economy.
Tom Hudson, anchor and managing editor of “Nightly Business Report,” can be followed on Twitter HudsonNBR.