Europe Fiddles While Greece Crumbles

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Martin Wolf writes today about the crisis in the eurozone. I’m not sure he’d put things quite this way, but here’s my shortened version:

  1. Greece cannot pay its debts. Period. It has no choice but to default.
  2. Once it defaults, it will be unable to borrow and it will be forced to cut spending even more than it has already. This will damage its economy further, which in turn will reduce tax revenues, which will require further spending cuts, which will damage its economy further, et cetera without end.
  3. This is obviously unacceptable. The only answer for Greece would be to exit the euro and devalue its currency. As painful as this would be, it would almost certainly be regarded as preferable to years or decades of economic collapse.
  4. But Greek exit from the euro would cause staggering damage to the rest of Europe and its banking system — far, far more damage than they’d suffer from merely increasing their bailout of Greece. See Wolf’s column for more on this. It must be avoided at all costs.
  5. Thus, the only option left is for Europe to prop up Greece for years. For all practical purposes, this doesn’t mean loaning Greece money, it means giving Greece money. Lots of it.

Europe has not yet truly faced up to the fact that #5 is really their only option. It’s infuriating, the public hates it, and Europe’s political leaders want no part of it. But as Wolf says, “The eurozone then cannot stay where it is, cannot undo what it has done and finds it traumatic to go forward. But the very notion of exit is destabilising. They made it; and they must now make it work.” Like Wolf, I don’t think they have any choice. The only question is how far past the 11th hour they’ll go before finally accepting this.

HERE ARE THE FACTS:

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ONE MORE QUICK THING:

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As we wrote over the summer, traffic has been down at Mother Jones and a lot of sites with many people thinking news is less important now that Donald Trump is no longer president. But if you're reading this, you're not one of those people, and we're hoping we can rally support from folks like you who really get why our reporting matters right now. And that's how it's always worked: For 45 years now, a relatively small group of readers (compared to everyone we reach) who pitch in from time to time has allowed Mother Jones to do the type of journalism the moment demands and keep it free for everyone else.

Please pitch in with a donation during our fall fundraising drive if you can. We can't afford to come up short, and there's still a long way to go by November 5.

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