Austerity \u2013 the policy of saving your way out of a demand shortfall \u2013 simply does not work. In a shrinking economy, a country\u2019s debt-to-GDP ratio rises rather than falls, and Europe\u2019s recession-ridden crisis countries have now saved themselves into a depression, resulting in mass unemployment, alarming levels of poverty, and scant hope.<\/p>\n
Warnings of a severe political backlash went unheeded. Shadowed by Germany\u2019s deep-seated inflation taboo, Chancellor Angela Merkel\u2019s government stubbornly insisted that the pain of austerity was essential to economic recovery; the EU had little choice but to go along. Now, with Greece\u2019s voters having driven out their country\u2019s exhausted and corrupt elite in favor of a party that has vowed to end austerity, the backlash has arrived.<\/p>\n
The euro, as the Swiss National Bank\u2019s recent \u00a0move implied, remains as fragile as ever. \u00a0The subsequent decision by the European Central Bank\u00a0to purchase more than \u20ac1 trillion ($1.14 trillion) in eurozone governments\u2019 bonds, though correct and necessary, has dimmed confidence further.<\/p>\n
If negotiations between the \u201ctroika\u201d (the European Commission, the ECB, and the International Monetary Fund) and the new Greek government succeed, the result will be a face-saving compromise for both sides; if no agreement is reached, Greece will default.<\/p>\n
Though no one can say what a Greek default would mean for the euro, it would certainly entail risks to the currency\u2019s continued existence. Just as surely, the mega-disaster that might result from a eurozone breakup would not spare Germany.<\/p>\n
A compromise would de facto<\/em> result in a loosening of austerity, which entails significant domestic risks for Merkel. \u00a0Given the impact of the Greek election outcome on political developments in Spain, Italy, and France, where anti-austerity sentiment is similarly running high, political pressure on the Eurogroup of eurozone finance ministers \u2013 from both the right and the left \u2013 will increase significantly. It does not take a prophet to predict that the latest chapter of the euro crisis will leave Germany\u2019s austerity policy in tatters.<\/p>\n There is no indication that she does. So, regardless of which side \u2013 the troika or the new Greek government \u2013 moves first in the coming negotiations, Greece\u2019s election has already produced an unambiguous defeat for Merkel and her austerity-based strategy for sustaining the euro.<\/p>\n The question now is not whether the German government will accept it, but when. Will it take a similar debacle for Spain\u2019s conservatives in that country\u2019s coming election to force Merkel to come to terms with reality?<\/p>\n Nothing but growth will decide the future of the euro. Even Germany, the EU\u2019s biggest economy, faces an enormous need for infrastructure investment. If its government stopped seeing \u201czero new debt\u201d as the Holy Grail, and instead invested in modernizing the country\u2019s transport, municipal infrastructure, and digitization of households and industry, the euro \u2013 and Europe \u2013 would receive a mighty boost.<\/p>\n The eurozone\u2019s cohesion now depends on whether it can overcome its growth deficit. Germany has room for fiscal maneuver. The message from Greece\u2019s election is that Merkel should use it, before it is too late.<\/p>\n Joschka Fischer writes: \u00a0Not long ago, German politicians and journalists confidently declared that the euro crisis was over; Germany and the European Union, they believed, had weathered the storm. Today, we know that this was just another mistake in an … Continue reading ![\"Color-Greece-austerity-WEB\"](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/01\/Color-Greece-austerity-WEB-300x232.jpg\")
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