Bite the bullet on Greece's debt and organize a default
Greek minister of Finance Evangelos Venizelos speaks during a parliament session about the 2012 state budget (Dec. 6, 2011). Credit: AP
Just when it seemed safe to ignore the European debt crisis for a while, Standard & Poor's downgraded the bond ratings of nine countries plus the eurozone financial rescue fund. And talks over further bailouts for Greece are faltering as it dawns on all parties that that nation will never be able to repay all it owes.
In other words, we still need to be afraid -- very afraid -- of Europe. Although the bond-rating agencies have a reputation for cluelessness, the downgrades will make it tougher for solvent eurozone countries to bail out their faltering brethren. The danger in Greece, meanwhile, is that a sudden, messy default will trigger a chain reaction that blows up Europe's banking system. That could undermine U.S. banks and drag us back into recession.
Does any of this sound familiar? It should, because the basics are unchanged. Europe should stop playing with fire and organize an orderly and comprehensive Greek default. It must also recognize that a policy across Europe of all-austerity, all-the-time will only choke off growth and make government debts harder to repay. And Germany must change course by spending more on imports and accepting some kind of communal eurozone debt.
While the European Central Bank has bought some time by pumping cheap money into Europe's banks, eurozone nations are still afflicted with too much debt, too little unity and no growth. Europe thus remains a time bomb, only with a slightly longer fuse.
