Five lessons from the Greek debt crisis
Let鈥檚 learn Greek 鈥� not the language, but the lessons of the Greece debt crisis that have shaken the euro, financial markets, and Europe鈥檚 leaders.
First, the crisis has exposed the central weakness of the euro currency itself: disunity. Its 16 member nations follow 16 different spending and borrowing policies. They鈥檙e supposed to align within an agreed set of constraints, but these are ignored.
There鈥檚 no fiscal unity because there鈥檚 no political unity 鈥� members want to keep their sovereignty. It may take a generation or more (if ever?) before Europeans hunger for true political unity. Until then, a way must be found to enforce the fiscal rules.
Second, despite the budgetary fault lines dividing the euro members, the larger, 27-member European Union, which includes the currency club, still has a strong pull on those countries in the union and those that want to join.
The EU鈥檚 political, strategic, and economic benefits are desirable enough to force reforms among aspirants, such as Serbia. And they鈥檙e attractive enough to impose a stringent austerity plan on Greece. On Thursday, the Greek government passed belt-tightening measures in exchange for a $140 billion rescue package from the other 15 euro members and the International Monetary Fund (IMF).
Among other things, the long-overdue austerity plan would commit Athens to slashing pensions and public workers鈥� pay, and raising consumer taxes (a necessity, because of widespread tax evasion).
Third, despite a new treaty that gave the EU its first full-time president and foreign minister, there鈥檚 still no single leader who can decisively pronounce, like Truman, that the buck stops here. But the de facto leader 鈥� at least in things economic 鈥� is Germany. Chancellor Angela Merkel has called the shots during the Greek crisis.
Fourth, the fact that the problem has been too big for Europe to handle, that the IMF had to jump in as well, reveals that one member is run almost like a third-world country. Other EU members may not lag so far behind, but they鈥檙e wobbly, and the markets know that.
Fifth, it should now be clear to every overspending nation and individual that, in the words of the wise German housewives of the Swabia region: 鈥淚n the long run, you can鈥檛 live beyond your means.鈥� This reminder courtesy of Ms. Merkel. Who else?
Let鈥檚 admit, though, that some lessons have yet to be learned, because some things we just don鈥檛 know. For instance, have the IMF and the nations using the euro currency struck the right balance in terms of the size of their rescue package (about $140 billion) and the severity of required belt-tightening in Greece? Go too far, and Greece could fall into a depression or implode with social unrest (such as the recent riots that left three dead). Many economists foresee debt restructuring 鈥� i.e., debt forgiveness 鈥� in which some investors will lose. And many worry that Greece will fail to implement its painful reforms.
Also unknown: Will other euro countries with big overspending problems, such as Spain, Italy, and Portugal, be able to get their fiscal houses in order? They aren鈥檛 Greece. But sometimes, markets ignore facts. They run on psychology. That鈥檚 why it鈥檚 important for Europe to show as publicly as possible that it鈥檚 learning its lessons.
