Today, Europe is at a critical juncture that may determine not only whether the euro will survive, but whether the global economy will be once again plunged into turmoil.
The current strategy for dealing with Greece’s debt difficulties is not working. The market has given its verdict: the speculators have been handed an opportunity, and they have seized it. Of this we can be certain: Europe’s response so far has amplified uncertainty concerning the future of the euro. “Contagion” has now spread from the periphery to the centre, to Spain and Italy.
Yet the problem is not so much economic as political. Europe is lucky that in most of the countries in the periphery, there were responsible governments that did not take populist stands. What George Papandreou has done in the past 18 months has been truly impressive – one could hardly have expected more. But in at least one of the countries – and perhaps in the future, in others – there wait in the wings less responsible politicians who would take advantage of widespread, and sometimes justified, views that Europe has not done what it should and has imposed politically unpalatable conditions.