For a few hours on Thursday, it looked like it was September 2008 all over again, as the global financial system appeared to be on the brink of having a meltdown. This time, the crisis wasn’t over banks, but over countries — specifically over fears that Greece won’t be able to pay back its mounting debt. While the massive stock market drop may have been made worse due to a computer glitch and fears of a Lehman-style meltdown have somewhat subsided, the fact is that the global economy is by no means out of the woods.

There can be little surprise that conservatives in America are drawing the exact wrong lessons from the Greek debt crisis. Dave Weigel points out that “Greece has become the new France” to conservatives, as Rep. Tod Tiahrt (R-KS) exclaimed:

[O]ur nation’s debt held by the public will reach an astonishing 90 percent of Gross Domestic Product within ten years. By comparison, Greece’s current debt to GDP ratio of 112.5 percent has resulted in a lowering of their credit rating to junk status. Without dramatic spending restraint, the U.S. is on a path toward the same crisis.

This is dangerous and misguided. The United States is in no danger of defaulting — our economy is growing and due to fears over the Euro, investors are boosting the value of the dollar. Yes debt is bad, and a lot of debt is really bad. Greece is definitely to blame for a failure to modernize its state and its economy over the last decade, but this isn’t about bailing out Greece any more — it is about Europe.

Just as the failure to rescue Lehman Brothers allowed the floodgates of the crisis to open, endangering other banks and the whole financial system, the failure to promptly and aggressively deal with Greece has lead to fears that contagion will spread to other European countries – such as Portugal and Spain. And just as the financial bailout was not about saving a particular bank — but about preventing America’s financial collapse and therefore the U.S. economy — the belated Greek bailout is not about saving lazy Greek pensioners — it’s about saving European banks and Europe’s financial system.

The problem is that the bailout for Greece and the subsequent austerity plan in many ways seems likely to fail. As Paul Krugman fears, it could send Greece into a deflationary death spiral, where its economy rapidly shrinks following cuts in public spending, this economic contraction leads to lower revenues, only making Greece less able to pay back its debts, which as a result lead to further economic collapse with Greece having to leave the Euro. This is the deflationary death spiral that America faced in ’08-’09 and would have certainly commenced if conservative austerity plans had carried the day. Yet the stimulus package and the Federal Reserve’s aggressive expansionary policy successfully avoided this outcome and now growth has returned.

Yet in Europe, efforts to stimulate have been limited. This is largely the result of German Chancellor Angela Merkel — the leader of Europe’s economic engine. Contrary to most American assumptions, Germany is highly conservative economically and has consistently adopted an approach that was overly preoccupied with fighting non-existent inflation and was highly suspicious of deficit spending. Last year Merkel and Larry Summers even publicly sparred over U.S. stimulus funding, and as Matt Yglesias has pointed out, the European Central Bank — which is largely under the thumb of Germany — has resisted injecting any life into the broader European economy. This suits Germany fine, but it is detrimental to the economies of countries on Europe’s periphery.

Now Merkel, realizing that the whole European monetary system could crash, has gotten on board a bailout package to help pay off its debt — much of which just happens to be owed to German banks. But this may have come too little too late. And any efforts to stimulate the Euro-zone have been punted by the European Central Bank, which has resisted lowering interest rates. In an excellent analysis of the crisis, the Washington Post’s Steve Pearlstein notes the emerging irony:

Back when the global financial crisis began in earnest in 2008, Europeans were quick to blame it all on Americans who lent unwisely and borrowed excessively. So it is more than a bit ironic that, having long denied its own forays into unwise lending and excessive borrowing, it is Europe that seems to be leading the global economy into the second phase of the crisis.

Merkel’s reluctance to act is not just a failure of German economic thinking, but a failure of German international leadership. In the wake of the ’08 economic crisis, European eyes turned to Berlin and Brussels. This gave Germany the opportunity over the course of the last two years to both assert itself as Europe’s leader, as well as set a clear course for the European project, which had gone adrift over the last half decade. Instead, Merkel has balked, choosing parochialism over bold leadership.

While this can all be seen as rational, since one could argue she is just pursuing what is in Germany’s national interest. But this is a very limited view of “national interest.” A larger conception of national interest understands the fact that Germany needs a strong Europe. Bailing out Greece and taking a leadership role in Europe is not charity, it is about enlightened self-interest. Instead, Merkel’s approach toward Europe and international affairs is one that leaves Germany, as well as the EU, punching below its weight on the international stage.