When the US financial system ground to a halt following the collapse of Lehman Brothers Washington responded with an unprecedented series of bailouts. Now, “bailout economics” has hit Europe. The consequences will be just as damaging to the long-term health of the world economy.

The problem with bailout economics is that it does nothing to resolve underlying structural problems that have brought companies or countries to the precipice of bankruptcy.

Take Bear Stearns. When it became clear, in March 2008, that Bear Stearns was in serious trouble, the New York Fed lent rival bank JPMorgan Chase $30 billion to buy Bear Stearns…and avoid a potentially damaging meltdown of the company.

This proved to be a pyrrhic victory. In September, Lehman Brothers – one of Wall Street’s oldest investment banks – collapsed. This triggered massive losses on the Dow and a credit crisis that would send the global economy into a dangerous tailspin

Fast forward to May 2010: Greece is on the brink of bankruptcy and, just as happened with Bear Stearns, a bailout is on the way. The problem is, just as happened with Bear Stearns, the threat of contagion is all too real

Of course, the Bear Stearns analogy implies that the next country to seek a bailout may not find its would-be rescuers so generous. Much to the surprise of many on Wall Street, when Lehman Brothers hit the wall in September 2008, Washington didn’t intervene; it let the bank collapse. This is now a very likely scenario in Europe.

The EU and the IMF have stumped up $146 billion to help Greece pay back its debt and avoid a default. This is little more than a delay tactic. It will help Greece avoid a default in 2010. But it will do little to heal the underlying structural problems besetting Greece and its fellow PIIGs – too much debt and not enough income.

Athens can try to implement so-called “austerity measures” – massive cuts to public spending. But by doing so it will further crimp economic growth. Ditto for tax hikes. What Greece needs is the ability to devalue its currency to make its exports more competitive. But it can’t devalue because it’s locked into the eurozone.

EU leaders are kicking this can as far down the road as possible, because doing otherwise means taking serious decisions about the future of the monetary union…and the entire EU project. If the Greece crisis has taught us anything, it’s that Europe’s leaders lack the ability to lead decisively in the face of a brewing crisis.

The silver lining of the Greek situation is that it will likely strengthen the dollar as investors flee the euro. It will also likely make vacationing on the Aegean cost a lot cheaper for Americans should Greece eventually be forced out of the euro and back to its former currency, the drachma.