Euro’s slide may give U.S. more rope to hang itself

Global financial markets have been rattled for weeks as euro zone leaders have clumsily tried to contain the Greek contagion. A nearly $1 trillion rescue package has done little to stop the carnage. The euro has been hammered, though recovered some lost ground in the last two days. Stock markets around the world took another beating Thursday as investors feared a global economic slump. The S&P 500 index fell 3.9 percent.

The big winners remain the dollar and U.S. government debt. Ideally, this should provide a window of opportunity for America to address its own deficit problems. And the message from the euro zone should be loud and clear — if lawmakers don’t put their house in order, markets eventually will do it for them.

Sadly, any moves to raise new funds and curb the deficit have become taboo. The recent energy bill proposed by the Senate passed up another opportunity to raise around $100 billion a year through a tougher carbon cap and trade system. Social Security reform, a reduction in mortgage income tax relief and other revenue savers may have to wait until bond investors threaten to revolt.

There’s hardly even been a whiff of rebellion, however. The incredible shrinking euro, in fact, has quashed any sign of interest rates moving higher. The U.S. government would only need to pay 3.25 percent for a 10-year loan — and less than 1 percent for a two-year note. Further upheaval abroad means the rate will probably go lower still.

Moreover, the dollar’s status as the world’s reserve currency has few challengers. That means foreign central banks are more likely to think twice about diversifying their vast savings into other currencies. And private investors will continue to park funds in government debt, even if they’re dismayed at Washington’s spendthrift ways. U.S. lawmakers shouldn’t delay tough decisions just because of the dollar’s popularity.