Quarrels far away

From the confluence of the Missouri and the Mississippi, the furor in Greece looks like what a British prime minister once called "a quarrel in a far-away country between people of whom we know nothing."

That prime minister was Neville Chamberlain, and the far-away country was Czechoslovakia. The quarrel was with Adolf Hitler over Germany’s claim to the Sudetenland. A year later, Hitler, unappeased despite Chamberlain’s efforts, invaded Poland. Twenty-seven months later, the United States entered World War II.

Moral: Quarrels in far-away countries, particularly European countries, are worth paying attention to.

The St. Louis Post-Dispatch points out in a recent editorial that the European Union was supposed to end Europe’s historic fractiousness, tying historic rivals into one big happy economic unit. How can you go to war with a country where you take your holiday?

It worked pretty well as economies expanded, but the world financial crisis of 2008 exposed a significant flaw: There was a common currency but no central bank.

So while the sovereign debt of any member nation remained that nation’s problem, the economies of all the member nations were so intertwined that the problems wouldn’t stay confined.

Greece last year became Exhibit A. The EU bailed it out, but demanded severe cuts to public-sector jobs and the social safety net. Recession deepened. The Greeks took to the streets, changed governments and demanded something different from austerity. Down the road are the other nations of the PIIGS group of distressed economies: Portugal, Ireland, Italy and Spain.

So what about this quarrel in far-away countries? What implications does it hold for us?

A recent research paper by Silvio Contessi, an economist at the St. Louis Fed, said the direct impact on the U.S. economy is likely to be limited. "The EU is the largest individual importer of U.S. goods and services, but only about 26 percent of total U.S. exports in 2011 were to the EU," he noted. Further, "none of the euro area countries that are currently burdened with sovereign debt crises are major importers of U.S. goods and services."

But because international financial markets are so deeply enmeshed -- see the recent JPMorgan Chase debacle touched off by the "London Whale" -- any banking crisis there surely would slow down growth on this side of the Atlantic, perhaps significantly.