February 1, 2010
The euro is facing the most serious crisis in its 11-year history. Greece, one of 16 European Union members that uses the currency, must raise $76 billion this year — more than $50 billion of it before June 30 — or default. A default would threaten the euro’s global credibility, scare investors away from other struggling European economies and likely reverse Europe’s fragile recovery.
Despite those very real dangers, Europe’s richer nations — most loudly Germany — have been acting as if this is someone else’s problem. Last week, the French newspaper Le Monde reported that Germany and France had begun contingency planning for possible financial assistance. Both governments denied it. We hope the report turns out to be true. Failing to develop a plan to step in if needed would be incredibly shortsighted.
The euro is wondrously convenient for travelers and international businesses. There’s one catch: Fiscal discipline is up to each participating country, and Greece has been anything but disciplined. It is running a deficit of nearly 13 percent of total output, more than four times the nominal limit for countries using the euro. Its national debt is almost double the permitted limit. With its credit rating sharply downgraded, Greece must pay a stiff premium to finance that deficit.
The economic fortunes of all the euro-using countries are too tightly linked to contain the crisis to one of them. And Greece may not be alone for long. Similar financing crises could soon hit Ireland, Spain and Portugal. Market anxieties threaten the currencies of Poland, Hungary and the Czech Republic.
For years, Greece fiddled its figures. In flusher times, too few questions were asked. Now the truth, and its consequences, must be faced: Corruption and tax evasion hobble the Greek economy. Millions work off the books. The private sector generates too few jobs and tax revenues, and one in four Greeks works for the state. It is a system designed to produce deficits.
The new Socialist government promises to cut the deficit to less than 3 percent within three years — and without outside help — by slashing public spending, improving tax collection and reforming the nearly bankrupt pension system. Those are necessary steps. But foreign investors are rightly skeptical that Greece can achieve the magnitude of savings required at a time of recession and rising social and labor unrest.
Nor should the entire burden fall on Greece — one of the European Union’s smaller and poorer economies. Any bailout must be accompanied by greater restraints on the fiscal sovereignty that Athens so egregiously abused. Letting Greece fail would be a disaster for all of Europe.
New York Times
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