Adrian Hamilton: Greece is right – Britain and Europe are letting it down

The UK knows well what markets can do and how to confront them

As if the EU isn't getting enough criticism from this side of the Channel, there's now a great wave of it coming from across the Atlantic. "Where Did Europe Go," blazons the front page of Time magazine, adding "The EU needs to decide if it wants to be a world power."

"Europe's Choice," declared the cover of Newsweek earlier this month. "Embrace American-style immigration and thrive, or shun it and wind up like Japan." Even Chris Patten has felt impelled to write a call-to arms in the New York Review of Books detailing what Europe needs to do to be respected by America.

Whether the EU's aim should be to become a "world power" and whether earning the respect of the US should be the paramount ambition of its foreign policy is a separate question, of course. But, if that is its aim, then it is clearly failing, and doing so very publicly

Having declared that it was now a force to be reckoned with on the world stage with the establishment of a President and a High Representative, it has appointed such nonentities to the jobs that even its worst critics abroad (and at home) are staggered by the expanse between pretence and reality. The EU's antics, as the French would say (and are saying as they denigrate with increasing venom the person and competence of Lady Ashton as EU foreign minister) suggest a grouping that is simply "pas serieux".

Foreign affairs, however, are one thing. Washington, which spent so much time and energy trying to split "New Europe" from "Old Europe" when Rumsfeld was at the Pentagon, is no one to talk of a weak and divided EU. What it now wants a united Europe for is support on precisely those issues – the commitment of troops to Afghanistan, the tightening of sanction on Iran and the isolation of Hamas in Middle East talks – which the Europeans would be wise to withhold approval.

It's not abroad where the EU has failed so badly, however, it's at home. If ever there was a crisis which demanded real leadership and common purpose it has been the financial meltdown and the recession which has accompanied it. If ever a group of politicians failed to meet that crisis it has been Europe's premiers when faced with the market assault on Greece for its excessive indebtedness.

The Greek Prime Minister, George Papandreou, has been in London recently and other capitals vociferously complaining that the EU has failed to back his country in its hour of need. And he is right. We all know the reasons which make a swift bail-out difficult. The Germans don't want their hard earned savings being frittered away on a bunch of spendthrifts in the south.

France is readier to do so, but most of the rest of Europe doesn't have the extra cash, while Gordon Brown, so keen to lead the world in the response to the financial crisis, when it comes to a problem concerning a fellow member of Europe has simply shrugged off Greece's difficulties as a problem for the eurozone not Britain.

It isn't. Greece's woes are a problem for the whole community not just the European Central Bank. Let the markets taste blood, as they have sensed it, in Athens and they will then move on to the euro currency itself and the creditworthiness of Portugal, Spain, Italy and, for that matter (for our finances are as bad) Britain.

And let the markets dictate the terms of immediate fiscal retrenchment, as they are in Spain as in Greece, and you will force the whole of Europe back into deflation just as the signs of recovery are being felt. This is no time for the EU, still Britain's biggest market by far, to falter in its growth.

Britain knows better than most from its long series of sterling crises what markets can do and how to confront them. You come up with a response of such conviction that the hedge funds and the short sellers have to scramble to cover their positions by buying back again and you achieve it by making sure that everyone sees the resources you are ready to commit.

The EU had the chance to do that in the summit of last month and flunked it. It could still do it now, although the longer it leaves it the bigger the response has to be. But instead of scrabbling around trying to fix up loans with private sector involvement, it needs to come up with a statement of guarantee of Greece's debt.

How Greece's borrowing is then organised is of less importance (an IMF loan is probably the best way). But what Greece and Europe also need is an EU-wide economic package that stays the gathering momentum for savage budget cuts everywhere and helps sustain the recovery.

Get that right, show that Europe has met its greatest challenge to date and overcome it, and you can forget American whingeing over Afghanistan and the transatlantic advice on immigration and power projection. The Union will have proved its worth for all to witness.

a.hamilton@independent.co.uk