For Financial Stability, U.S. Must Show Concern For Euro

The Obama administration was absent from the recent European Union bailout discussions dealing with Italy and Spain, but must realize what kind of impact those bailouts would have on the United States and, therefore, show more concern for these negotiations.

The European Union and its shared currency are currently breeding financial uncertainty. European markets shuttered last week amid fears of the effect the plummeting U.S. stock markets would have abroad. Italy and Spain are two powerful European Union nations in dire financial straits. Recent reports indicate that both countries may require EU bailouts, as fellow member Greece recently required.

Italy recently announced its plans to balance its budget by 2013, one year earlier than originally planned. Italian premier Silvio Berlusconi and his conservative government, more than halfway through their five-year term, announced that they will also work towards a balanced budget amendment to the constitution.

Spain, who has led the EU in borrowing costs for most of the past two decades, is struggling just as mightily, if not worse. Spain recently announced efforts to speed up fiscal improvements, but it may be too little too late.

The yields on Spain's and Italy’s 10-year bond status are eerily approaching levels that forced Greece to seek international financial help.

As the eurozone bailout of Greece and the earthquake in Japan have shown, the success of global markets, although maybe indirectly, has an effect on the U.S. economy. Alternately, world stability helps create domestic stability. If Italy and Spain require bailouts, it could force the U.S. into a recession possibly worse than the previous one. In turn, it would raise U.S. interest rates, raise oil prices per barrel, create worry on Wall Street, and decrease consumer confidence. 

The Obama administration needs to take lessons from Berlusconi’s regime in planning to balance the budget and proposing a balanced budget amendment, and Secretary of Treasury Timothy Geithner and the State Department also need to keep a close eye on Italy and Spain.

Many in this country argue that we should be solely focused on the domestic economy, but we also have a vested interest in what goes on abroad. The U.S. should be more heavily invested in the EU bailout discussion, so as not to be blindsided by the effects that the bailouts of Italy and Spain would have on our own economy.

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