May 17, 2010
When I was in grade school, math teachers loved Venn diagrams, those overlapping circles that showed which elements different sets had in common. Talk to European officials, and each sketches some way to solve the Greek debt crisis. But their circles don't overlap.
The story so far: Greece lied its way into the euro, and because it could borrow in the common currency it was able to overborrow. Now, it can't pay its debts. A year ago, the rest of Europe and the International Monetary Fund lent it €110 billion ($155 billion) to tide it over. That loan was based on a business plan that proved overoptimistic.
Greece did a lot of belt-tightening, though not all it promised. The Greek economy did worse, which meant less tax revenue. All that produced bigger deficits, and means Greece needs more money—and isn't likely to get it from the markets, as initially hoped. Few sober analysts see any way the Greek economy can grow fast enough and its government get lean enough quickly enough to pay its debts on time.
Were Greece an ordinary IMF client, it would promise to do better, the IMF would lend more and the world would yawn. But Greece shares the euro so it's far from ordinary; among other things, it no longer has its own central bank to print money to bankroll its government. And because what happens in Greece doesn't stay in Greece, the stakes here are bigger than when Argentina or Uruguay stiffed creditors—not only for other countries that use the euro but also for the rest of the world, given the virulence of financial viruses.
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