Greece

The latest from Europe, or more specifically, from Greece, is not good.  According to a recent report in the Wall Street Journal, Greece seems to be politically stuck in an unfixable situation.  Representatives from the Euro zone  have tried to get them to clean up corruption and make needed changes to make the Greek economy more competitive.  There were promises at first, but when it came right down to it, the changes were not politically doable.

My philosophy is always to take these things with a grain of salt (e.g., is it really unfixable or are we about to be surprised to hear that it is fixed), but if such reports are true, there are more troubles ahead for Europe.  The Greek economy is in serious trouble.  The austerity measures imposed by the other Euro zone members as a condition for bailing Greece out of insolvency contribute to economic contraction, and the structural problems of the economy itself are damaging as well.  Recent elections have installed in their parliament a large number of extremists on the right and left.

Of course it is difficult to predict how serious such things can be for the big picture--the economies of Europe, the United States and the world.  The Euro zone members are afraid that if they cut Greece loose from the Euro, the crisis could progress on to other Euro members such as Spain, Italy and Ireland.  On the other hand the consequences of continuing to prop up Greece could be equally damaging.

Fear of the unknown is sometimes the biggest barrier.  No one really knows what will happen if Greece exits the Euro zone.  However it seems to be pretty certain that Greece will drag the Euro zone down if it remains a part of it.

Nor is Greece the only country with problems.  The others mentioned above are also vulnerable.

Economists generally agree that freer markets, especially more fluid labor markets, and also less generous social benefits, are remedies that can help Europe.  Some of the countries are moving in that direction.  It is not easy.  The politics of it are the most difficult.  But changes have to be made, and we hope they will be.