Andy Langenkamp writes: Troubles on the road ahead in Europe:

• Creditors are probably hoping that growth in Europe will pick up enough in the coming years to allow them to write off Greek debt without the public taking much notice. However, if European growth continues to underperform for a length of time, the moment may arrive when Europe and Athens can no longer pretend that Greece is solvent without having the political and economic cover to implement a huge haircut.

• Most experts doubt the sustainability of the current Greek coalition – the two parties are far apart on the left-right political continuum. A government collapse would usher in a new period of political and economic instability that may be too much for the Greek economy to handle, resulting in the much-feared Grexit.

• European politicians often have little political room for maneuver in negotiations as a result of the growing populist, nationalist electoral threat.

• Europeans have increasingly discovered that globalization, aside from being a force for prosperity and progress, can also cause political and economic havoc. Greece has experienced firsthand the ways globalization undermines democracy. It’s an illusion to think that economic policy can be decided on a national level. Nationalism and focus on sovereignty will impede Continental cooperation right at the time when economic risks and geopolitical dangers make it essential.

• In France, President Francois Hollande and his government are trying to circumvent democracy in order to push through economic reforms. This will probably please markets. It doesn’t help that Hollande and opposition leader Nicolas Sarkozy are both very unpopular.

• Inside and at the edges of the European Union, we are witnessing the maturation of authoritarian tendencies in Hungary, Ukraine, Turkey, and Russia, to name a few. This illiberal trend can only be countered by a united front, and that unity is nowhere to be found right now.

Dutch journalist Caroline de Gruyter recently wrote that the Greeks have been the first to discover that globalization and democracy make uneasy partners. They won’t be the last nation to discover this, and this will cause big troubles in the years ahead.

The events of recent weeks have done absolutely nothing to improve the personal ties between the Greek government and its European counterparts. Grandstanding, mutual accusations of bad faith, and needlessly confrontational politics have eroded much political goodwill. This is likely to make the coming talks even thornier than those that recently concluded.

In the end, a choice will be made between the amputated leg theory (the view that cutting off the gangrenous Greek limb will save the body of the euro) or the domino theory (the idea that a Grexit would cause other vulnerable economies to follow, destroying the monetary union). We subscribe to the latter, but some of our financial analysts are starting to doubt this. We all do agree with the analysis of Eurasia Group that “the politics of Europe” is the number one global risk this year, and it will remain so if Europe keeps playing these political and economic games.

Bruce Thornton writes:  The slow-motion crisis of the European Union is the big story that rarely gets the attention it deserves. On the economic front, the E.U.’s dismal economic performance over the last six years was summed up in a December headline in Business Insider: “Europe Stinks.” The 2008 Great Recession exposed the incoherence of the E.U.’s economic structure, particularly its single currency, which is held hostage by the diverse economic policies of sovereign nations. The data tell the tale. The E.U.’s GDP grew 1 percent in 2013, anemic compared to the U.S.’s 2.2 percent. In December 2014, unemployment in the E.U. averaged 11.4 percent, while in the U.S. it was 5.6 percent. We are troubled by our labor force participation rate of 62.7 percent, a 36-year low. But in the E.U., it was 57.5 percent in 2013. Our recovery from the recession may be slow by our historical standards, but it is blazing compared to the E.U.’s.

The E.U.’s economic woes have many causes, but intrusively regulated economies and outsized government spending on generous social welfare transfers are two of the most important. Despite the rebuke of such policies delivered by the recession, government spending as a percentage of GDP has actually increased in the E.U., from 45.5 percent in 2007 to 49 percent in 2013, even as many Europeans decry the harsh “austerity” measures called for by countries like Germany. Greece, the E.U member increasingly in danger of being forced to exit the monetary union and thus risk its unraveling, has nonetheless raised its government spending from 46.8 percent in 2007 to 59 percent in 2013.

Socially, the E.U. is troubled by two trends: demographic decline and the presence of concentrated populations of unassimilated and disaffected Muslim immigrants. Europe is an aging people; by 2030, one in four Europeans will be 65 years or older, reflecting the Europeans’ failure to reproduce. Not since the 1970s have European women averaged 2.1 children, the number necessary to replace a population. It means fewer workers, a factor in the influx of immigrants into the E.U. over the last several decades.

The result has been large concentrations of immigrants segregated in neighborhoods like the banlieues of Paris or the satellite “dish-cities” of Amsterdam. Shut out from labor markets, plied with generous social welfare payments, and allowed to cultivate beliefs and cultural practices inimical to liberal democracy, many of these immigrants despise their new homes and find the religious commitment and certainty of radical Islam an attractive alternative.

All these economic, social, and political problems are no secret. But the proposed solutions to them usually focus on policy changes or technical adjustments to the structure and functioning of the E.U. Yet this begs the fundamental question that has troubled European unification ever since it began with the Treaty of Rome in 1957: What comprises the collective beliefs and values that can form the foundations of a genuine European-wide community?

A shared commitment to leisure, a short workweek, and a generous social safety net is nothing worth killing or dying for. Neither is the vague idea of a transnational E.U. ruled by unaccountable Eurocrats in Brussels and Strasbourg..

We American should not indulge the schadenfreude aroused by watching our sometimes-condescending older cousins slip farther and farther behind us in global importance and power. Europe is still collectively the world’s largest economy, and its travails will impact the whole globe. More importantly, many of the trends weakening Europe today are active in the US too.

Roughly 2.5 billion adults in the world don’t have access to banks, which means somewhere in the order of 5 billion people belong to households that are cut off from a financial system that the rest of us take for granted. They can’t start savings accounts. They don’t have checking accounts. They can’t get credit cards. They live in places where banks don’t want to go, and because of this, they remain effectively walled off from the global economy. They are called the unbanked. But they are not unreachable, not by a long shot, and one of the biggest and most exciting prospects bitcoiners talk about is using their cryptocurrency to bring these billions of people roaring into the twenty-first century, Foreign Affairs points out.

The Caribbean is an area of the emerging-market world where a strong case can be made for locals to use bitcoin to get around a restric­tive financial system.

Should women in developing countries use bitcoins?

Ricardo Hausmann writes:  US observers, influenced by their own country’s fiscal debate, look at Greece.  Joseph Stiglitz regards austerity in Greece as a matter of ideological choice or bad economics, just like in the US. According to this view, those who favor austerity must be obsessed with the theory, given the availability of a kinder, gentler alternative. Why would you ever vote for austerity when parties like Greece’s Syriza or Spain’s Podemos offer a pain-free path?

The question reflects a lamentable tendency to conflate two very different situations. In the US, the issue was whether a government that could borrow at record-low interest rates, in the middle of a recession, should do so. By contrast, Greece piled up an enormous fiscal and external debt in boom times, until markets said “enough” in 2009.

Greece was then given unprecedented amounts of highly subsidized finance to enable it to reduce gradually its excessive spending. But now, after so much European and global generosity, Stiglitz and other economists argue that some of Greece’s debt must be forgiven to make room for more spending.

But the truth is that the recession in Greece has little to do with an excessive debt burden. Until 2014, the country did not pay, in net terms, a single euro in interest: it borrowed enough from official sources at subsidized rates to pay 100% of its interest bill and then some. This situation supposedly changed a bit in 2014, the first year that the country made a small contribution to its interest bill, having run a primary surplus of barely 0.8% of GDP (or 0.5% of its debt of 170% of GDP).

Greece’s experience highlights a truth about macroeconomic policy that is too often overlooked: The world is not dominated by austerians; on the contrary, most countries have trouble balancing their books.

Recent advances in behavioral economics show that we all have enormous problems with self-control. And game theory explains why we act even more irresponsibly when making group decisions (owing to the so-called common pool problem). Fiscal deficits, like unwanted pregnancies, are the unintended consequence of actions taken by more than one person who had other objectives in mind. And lack of fiscal control is what got Greece into trouble in the first place.

So the problem is not that austerity was tried and failed in Greece. It is that, despite unprecedented international generosity, fiscal policy was completely out of control and needed major adjustments. Insufficient spending was never an issue. From 1998 to 2007, Greece’s annual per capita GDP growth averaged 3.8%, the second fastest in Western Europe, behind only Ireland.

But by 2007, Greece was spending more than 14% of GDP in excess of what it was producing, the largest such gap. The gap was mostly fiscal and used for consumption, not investment.

Unsustainable growth paths often end in a sudden stop of capital inflows, forcing countries to bring their spending back in line with production. In Greece, however, official lenders’ unprecedented munificence made the adjustment gradual. Even after the so-called Greek Depression, its economy has grown more in per capita terms since 1998 than Cyprus, Denmark, Italy, and Portugal.

Sudden stops are always painful. Unless Greece boosts exports, spending cuts will amplify the output loss in the same way that Keynesian multipliers amplified the output gain from borrowing.

The problem is that Greece produces very little of what the world wants to consume. Its exports of goods comprise mainly fruits, olive oil, raw cotton, tobacco, and some refined petroleum products. Germany, which many argue should spend more, imports just 0.2% of its goods from Greece. Tourism is a mature industry with plenty of regional competitors. The country produces no machines, electronics, or chemicals. Of every $10 of world trade in information technology, Greece accounts for $0.01.

In 2008 the gap between Greece’s income and the knowledge content of its exports was the largest among a sample of 128 countries.

Greece needs to develop its productive capabilities if it wants to grow. The unfocused set of structural reforms prescribed by its current financing agreement will not do that. Instead, Greece should concentrate on activist policies that attract globally competitive firms.