Image: Anthony Mirhaydari

Anthony Mirhaydari

If you're like most Americans, you couldn't care less about Europe. After all, they're just a bunch of socialists with cushy retirements getting their comeuppance, right?

And with yet another summit to save the eurozone set for this week -- the 19th such summit in two years -- people are ready to refocus on more important things, like who's going to win "The Bachelorette" or where to buy good fireworks.

But the eurozone's two-year-old debt crisis and all of its political machinations really matter. Seriously.

The endgame for all this will very likely see the eurozone tighten into something resembling the United States of Europe with increased political, fiscal and financial cohesion. As I'll explain below, Germany, France, Italy and Spain have no choice but to increasingly cede sovereign power to Brussels, de facto capital of the European Union. Weak countries like Spain can't afford to go it alone. And strong countries like Germany can't afford the economic turmoil and banking losses that would result from ending or exiting the euro.

All this matters because the eurozone accounts for 13% of the global economy. It matters because the euro is the world's second-largest reserve currency, which, after the dollar, is the most traded currency in the foreign exchange markets. It matters because what's at risk here is far greater that what was at risk in the mortgage meltdown.

Right now, the face value of euro-denominated interest rate and currency derivatives (assets based on other assets, like stock options) totals some $190 trillion, according to Capital Economics. For comparison, there were $7.5 trillion worth of mortgage-based derivatives swishing around during 2008 and 2009 crisis that nearly crushed the global financial system. That means there's a lot more at risk now, and the stakes are much, much higher.

So even if you like ketchup with your freedom fries and your football with helmets and shoulder pads, everyone in America should be hoping and praying Europe gets it together soon. Preferably this week.

We are them, and they are us

More than that, Europe's crisis is a mature manifestation of the same debt and deficit problem we face in the land of Stars and Stripes, with a few key differences. Uncompetitive economies with bloated public sectors gorged on cheap credit, suffered a banking crisis as loans went bad and have now reached the limit of debt their economies can support. Bad debt that started with consumers, passed to the banking system and has now been assumed by an overly large state. Sound familiar?

And now, we're both in the grips of a Japanese-style debt deleveraging, balance-sheet recession with no capacity to stoke our economies with cheap credit and no political appetite for short-term stimulus, since people are obsessed with minimizing debt, not maximizing profit.

While the U.S. Treasury is still having cash thrown at it by the capital markets (which are willing to buy bonds at negative interest rates, after adjusting for inflation), Europe's ability to fund itself is drying up. Countries are losing the ability to fund the short-term stimulus they need, be it spending on things like roads and bridges or forestalling tax hikes.

Thus, European nations must find a solution to their funding problems first.

The next step, as I've explored in other columns on the balance-sheet recession (see "The world's $8 trillion debt hole"), is growth. There is no other way to fix the debt-to-GDP problem at the heart of the sovereign debt crisis than to grow the gross domestic product quickly while slowly whittling down the debt. In other words, short-term stimulus -- spending -- must be combined with medium-term commitments to address structural drivers of the deficit (things like public pensions, unfunded entitlements, uncompetitive workforces and out-of-control health care costs).

Here at home, it would be via investment in things like infrastructure, education, job training and making the health care system more efficient. In Europe, it would be encouraging consumption and moderate wage inflation in Germany.

But if you look only to austerity by slashing spending and hiking taxes, and ignore the need to stimulate growth (the strategy of hard-right conservatives in Germany and in Washington), you get results like the 1937 double-dip, Greece's five-year-old austerity-driven nightmare recession, or the $570 billion funding gap Spain now faces (both banks and the government) through 2014, according to RBS estimates.

Pleasing Germany's Merkel

Right now, Spanish and Italian borrowing costs are nearing unsustainable territory, and the new Greek government is demanding concessions on the strict budget austerity requirements imposed on it as part of its bailout agreement. Action is needed on a first step of pushing down eurozone borrowing costs and restoring the ability of Spain and Italy to fund their deficits and backstop their banks at sustainable interest rates.

Then, they could focus on growth.

The European Central Bank is starting to move. Late last week, it relaxed its quality requirements on assets being pledged as collateral by banks looking for cheap capital. And it's widely believed the ECB will cut its key interest rate (at 1% now) early next month.

These are merely Band-Aids for the deeper structural problems at work in the eurozone crisis. Indeed, ECB chief Mario Draghi said on June 15 that the Continent had reached a point "where political choices have become predominant over monetary instruments that we can use in the near future." Essentially, he is saying that real solutions will require progress toward the United States of Europe.

I'll make this really simple: Unless Germany relaxes its strict austerity-only, no-bank-union, no-liability-sharing approach at this week's summit, things are going to get ugly -- really ugly. So it's all about pleasing German leader Angela Merkel and melting the icy façade that's been the bane of Europe's troubled "Latin Bloc."

Last Friday's "pre-meeting" of the German, French, Italian and Spanish leaders was a bit of a dud, with agreement to a measly $162 billion "growth pact." Europe needs to do more. Germany needs to do more.

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Global policymakers are practically begging Germany to interrupt the death spiral of austerity, weak economy, weak banks, deeper deficits and more austerity that it keeps pushing on its European neighbors.

The head of the International Monetary Fund is calling for a banking union with shared deposit insurance, shared supervision and shared failed bank resolution, as well as shared liabilities via "eurobills," short-term bonds backed by the entire eurozone. The Bank of International Settlements over the weekend also threw its weight behind the banking union idea. Even the banking lobby is calling for more cooperation via the Institute of International Finance.

We need a game changer to break us out of the funk. This week's summit may very well feature one.