Peter Goldmark Peter Goldmark, former publisher of the International Herald

Peter Goldmark writes a weekly column for Newsday. He is former budget director of New York State and publisher of the International Herald Tribune. He headed the climate program at the Environmental Defense Fund. Show More

It's the time of year when our attention turns to Presidential elections and the World Series -- two uniquely American institutions featuring unpredictable outcomes, deeply held loyalties and roaring crowds.

But it's also important this fall to keep an eye on the quiet but disturbing drama unfolding in Europe -- the largest market in the world and our largest trading partner. Through the summer, Europe continued to drift unsteadily across the economic landscape.

Greece saw its largest anti-austerity protests in more than a year last week. Government services -- or non-services, more accurately -- have continued to crumble.

Elsewhere in Europe, an amount roughly equal to 30 percent of Spain's gross domestic product has been withdrawn from that country's banks. Optimism by European leaders about Ireland's "recovery" turned out to be woefully misplaced. Great Britain's economy continues to gasp, with three successive quarters of GDP decline. And France registered its 16th straight month of rising unemployment.

There is no serious economic stimulus program anywhere in the eurozone. One of the oldest rules of economic recovery is: It's hard to work your way out of a debt problem unless you have economic growth. The European Union has promised to institute eurozone-wide banking supervision. But EU members have not been able to agree on the structure of that oversight body and say, in relaxed fashion, that it won't be ready to function before the end of 2013.

And it's likely that one or more official bodies will shortly declare that Europe as a whole is technically in recession.

Europe's future is important on its own merits. But if you need a reason to pay attention, just remember that if Europe sinks into a rash of bank failures or economic depression, it will have an enormous negative effect on our own struggling economy.

Germany, the largest economy in Europe, is at the center of this drama. It's somewhere between difficult and impossible for Europe to act in a coherent fashion without German agreement. The European economic crisis is really a tangled knot of government and banking system problems. And while the Germans are often seen as prudent stewards of government economic policy, their banking system is part of the problem, not the solution.

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The top level of the German financial system consists of the global giants like Deutsche Bank, Commerzbank and Allianz (an insurance company). They aren't the problem; the trouble starts with the second level, composed of the nine public-sector state-level banks -- some of whose "expansionary investments have turned into significant losses in the course of the global crisis," in the delicate words of the International Monetary Fund -- and over 1,000 local, banks, many of which have engaged in unwise lending and would not fare well under rigorous scrutiny by a supervisory agency. Yet they wield enormous political influence -- hence Germany's ambivalence about extending the fiscal rigor they urge upon others to their own state and local banks.

And across the eurozone there has been resistance to the logical step of putting the weak, poorly run banks out of their misery and consolidating around the stronger one.

The string of half-measures and emergency bailouts has inspired some observers to hail Europe's resilience and predict that she will muddle through. But dealing with an economic crisis is like surgery: It goes best when it is decisive, clearly targeted and swift. Europe's drawn-out melodrama has now begun to lower the standard of living of many Europeans, and has further entangled wobbly governments with their weak banks. It looks now as if step-by-step improvisation isn't going to be enough. And the parts of the world, such as the United States, Japan and perhaps China, that will be called on if an external rescue of the eurozone is needed are not, themselves, in very good shape.

None of this is good for us on this side of the Atlantic at all.

Peter Goldmark, a former budget director of New York State and former publisher of the International Herald Tribune, headed the climate program at the Environmental Defense Fund.