Wall Street Journal
September 6, 2011
Europe is engaged in a high-stakes game of brinkmanship that poses grave risks to the global economy. At last weekend's Villa d'Este Forum in Italy, European policy makers didn't hide their fury at Greece's back-sliding over promised structural reforms and spending cuts. At the same time, Italian ministers undermined the remaining credibility of Silvio Berlusconi's government with a series of complacent speeches. Given such a dangerous breakdown in trust within Europe, investors are right to fear the worst.
Germany and its Northern European allies believe only intense market pressure can force weak economies to cut spending and improve competitiveness. But Greece has learned that whenever the crisis in Europe's periphery threatens to overwhelm the core, Europe will ignore previous broken promises and step up with a fresh bailout.
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