This is going to be the most important week in the 11-year history of Europe’s monetary union. By the end of it we will know whether the Greek fiscal crisis can be contained or whether it will metastasize to other parts of the eurozone.
Unless we hear some implausibly good news from Athens by Friday, it will soon blow up.
The blow-up has started
Standard & Powers first lowered its rating of Greek bonds, then Portugal's and today Spain's.
On Tuesday, a vice president of the European Central Bank said that the euro zone was facing its biggest challenge since the adoption of the Maastricht Treaty in 1997. Austerity measures in Greece and Portugal are already causing unrest there. Transportation workers in both countries protested on Tuesday, leaving train stations deserted because of strikes.
Officials from Standard & Poor’s said the main reason for downgrading the debt of Greece and Portugal was the prospect that forced austerity packages would be an even bigger drag on economic growth.
It is the most vicious of circles: stagnating economies are forced to cut back more, which reduces their ability to generate revenue and thus pay off their debts. As part of the euro zone, these countries do not have the ability to print their own money to stimulate growth and bolster exports, so increasing debt and an increasing prospect of default result.
Walter Russell Mead on Europe in Crisis
Europe once again has blundered its way into a major crisis.
The Greek meltdown is on the surface just another financial crisis: yet another delusional country pursuing the path of least resistance has made promises it can’t keep to public and private sector workers. Now the bill must be paid and the IMF called in to reorganize the national finances.
If that were all, it would not be so bad, but something much bigger and more troubling is involved.
The internal problem stems from the fact that the euro, widely hailed as Europe’s greatest initiative, is starting to look like a strategic mistake. Europe’s countries and cultures may be too different to live under the same set of economic policies.
This is a political crisis for Europe rather than a financial crisis because the only way out for the PIGS involves a large bailout from the northern countries led by Germany and France. Germans especially don’t want to pay. It has been clear for some time that the Greeks cheated and lied their way into the eurozone, and for years they have pursued selfish and foolish economic policies. Why, Germans ask with some force and logic, should German taxpayers who cannot retire until their late sixties.
It’s too soon to say where this latest euro-crisis is heading, but serious economic or political disturbances in Europe will soon affect us over here — and not in a good way.