Greece, Europe and the Club Med Dilemma

Last week’s non meeting between the various European finance minister solved one thing, Europe is not set up to deal with a crisis. On the face of it this is an indictment of European union, but this problem is also true for the rest of the G7 countries. Exception would be Canada, simply because Canada’s fiscal crisis occurred in the mid 90s. When the world was growing, and Canada benefited from inclusion in NAFTA. 

Anyway the Financial times said it best
 

The core issue in the eurozone crisis is not the overall size of the peripheral countries’ sovereign debt. […]. The problem is that the eurozone is politically incapable of handling a crisis that is now contagious and has the potential to cause huge collateral damage. The “grand bargain” – a series of institutional agreements on eurozone sovereign debt by the European Council in March – did not address the resolution of the current crisis. That process is starting only now. Those responsible have realised that, no matter which debt management option they choose, it will cost taxpayers hundreds of billions. It is highly unlikely states will accept fiscal transfers of such a size without imposing extreme conditions on one another.

The political reason this crisis goes from bad to worse is an unresolved collective action problem. Both sides are at fault. The tight-fisted, economically illiterate northern parliamentarian is as much to blame as the southern prime minister who cares only about his own backyard. The Greek government played it relatively straight but Portugal’s crisis management has been, and remains, appalling.

(Source: Financial Time)