Project Syndicate
November 8, 2011
It may be hard to imagine that Europe’s crisis could worsen, but it just has. European Union leaders failed at their summit two weeks ago to produce anything of substance. China and Brazil are clearly reluctant to come to the rescue by providing a large injection of foreign cash. And the recent G-20 summit in Cannes produced no agreement on steps that might have helped to resolve the crisis.
Now there is the collapse of the Greek government. The trigger may have been outgoing Prime Minister George Papandreou’s ill-advised decision to call for a referendum on the EU’s rescue package (which implies further severe austerity measures); but the fundamental problem is that a brutal recession made the government’s demise all but inevitable.
The formation of a new national unity government does not mean that the Greek problem is behind Europe or the world. On the contrary, the new government’s position will be no more tenable than that of its predecessor. Until there is hope, however remote, that Greece can begin to grow again, the problem will not go away.
Even worse for financial stability, Papandreou’s announcement of a referendum provoked German Chancellor Angela Merkel and French President Nicolas Sarkozy to break an important taboo. Previously, European leaders had averred that the euro was forever, repeating at every turn that they would do whatever it took to hold the monetary union together. Last week, in a dangerous departure, Merkel and Sarkozy bluntly told the Greeks that it was up to them to decide whether they wanted to keep the euro.
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