Greeceandtheeuro

CrisisrevisitedTheeuroisstillvulnerable,andGreeceisnottheonlyproblem

Dec13th2014| Fromtheprintedition

ITWASalmostexactly

fiveyearsagothatthe

eurocrisiserupted,

startinginGreece.

Investorswhohad

complacentlyletall

eurozonecountries

borrowatuniformlylow

levelsabruptlywokeup

totheriskinessofan

incompetent

governmentborrowing

moneyinacurrency

whichitcouldnot

depreciate.Thereisthus

adismalsymmetryinseeingtheeurocrisisflareupagainintheplacewhereitbegan.

TheproximatecauseofthelatestoutbreakofnerveswasthedecisionbytheGreekgovernment,

nowheadedbythegenerallycompetentAntonisSamaras,toadvancethepresidentialelection

tolaterthismonth.Thepresidencyislargelyceremonial,butifMrSamarascannotwinenough

votesinparliamentforhiscandidate,StavrosDimas,ageneralelectionwillfollow.Pollssuggest

thewinnerwouldbeSyriza,apopulistpartyledbyAlexisTsipras.AlthoughMrTsipras

professesthathedoesnotwanttoleavetheeuro,heismakingpromisestovotersonpublic

spendingandtaxesthatmaymakeithardforGreecetostay.Hencethemarketssudden

pessimism.

Asithappens,thereisagoodchancethatMrDimas,aformerEUcommissioner,willwinthe

presidentialvoteattheendofthismonth(seearticle).ButthelatestAegeantragicomedyisa

ExploreourinteractiveguidetoEurope'stroubledeconomies(http://www.economist.com/blogs/graphicdetail/2013/07/europeaneconomyguide)

timelyreminderbothofhowunreformedtheeurozonestillisandofthedangerslurkinginits

politics.

Itistruethat,eversincethepledgebytheEuropeanCentralBankspresident,MarioDraghiin

July2012todowhateverittakestosavetheeuro,fearsthatthesinglecurrencymightbreak

uphavedissipated.Muchhasbeendonetorepairtheeurosarchitecture,rangingfromthe

establishmentofabailoutfundtothestartofabankingunion.Andeconomicgrowthacross

theeurozoneisslowlyreturning,howeveranaemically,eventoGreeceandotherbailedout

countries.

Butisthatgoodenough?Eveniftheimmediatethreatofbreakuphasreceded,thelongerterm

threattothesinglecurrencyhas,ifanything,increased.Theeurozoneseemstobetrappedina

cycleofslowgrowth,highunemploymentanddangerouslylowinflation.MrDraghiwouldlike

torespondtothiswithfullblownquantitativeeasing,butheisrunningintofierceopposition

fromGermanandotherlikemindedECBcouncilmembers(seearticle).Fiscalexpansionis

similarlyblockedbyGermanysunyieldinginsistenceonstrictbudgetarydiscipline.Andforcing

structuralreformsthroughthetwosickliestcoreeurocountries,ItalyandFrance,remainsan

agonisinglyslowbusiness.

Japanisreckonedtohavehadtwolostdecadesbutinthepast20yearsitgrewbyalmost

0.9%ayear.Theeurozone,whoseeconomyhasnotgrownsincethecrisis,isshowingnosignof

draggingitselfoutofitsslump.AndJapanspoliticalsetupisfarmoremanageablethan

Europes.Itisasinglepoliticalentitywithacohesivesocietytheeurozoneconsistsof18

separatecountries,eachwithadifferentpoliticallandscape.Itishardtoimagineitliving

throughadecadeevenmoredismalthanJapanswithoutsomepoliticalupheaval.

Greeceishardlyaloneinhavingangryvoters.PortugalandSpainbothhaveelectionsnextyear,

inwhichpartiesthatarefiercelyagainstexcessiveausterityarelikelytodowell.InItalythreeof

thefourbiggestparties,ForzaItalia,theNorthernLeagueandBeppeGrillosFiveStar

movement,areturningagainsteuromembership.FrancesantiEuropeanNationalFront

continuestoclimbintheopinionpolls.EvenGermanyhasarisingpopulistpartythatisagainst

theeuro.

Itsthepolitics,stupid

Indeed,thepoliticalriskstotheeuromaybegreaternowthantheywereattheheightofthe

eurocrisisin201112.Whatwasstrikingthenwasthatlargemajoritiesofordinaryvoters

preferredtostickwiththesinglecurrencydespitetheausterityimposedbytheconditionsof

theirbailouts,becausetheyfearedthatanyalternativewouldbeevenmorepainful.Nowthat

theeconomiesofEuropeseemalittlemorestable,therisksofwalkingawayfromthesingle

currencymayalsoseemsmaller.

AlexisdeTocquevilleonceobservedthatthemostdangerousmomentforabadgovernmentwas

whenitbegantoreform.Unlessitcanfindsomewaytoboostgrowthsoon,theeurozonecould

yetbearouthisdictum.

Fromtheprintedition:Leaders