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| Version 1 | Version 2 |
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| A Possible Day of Reckoning, Again, for Greece and Europe | A Possible Day of Reckoning, Again, for Greece and Europe |
| (about 2 hours later) | |
| For anyone who spent the years 2010 to 2012 obsessing over the fate of the eurozone during the crisis set off by Greek debt, the last few days have been a time of uncomfortable déjà vu. | For anyone who spent the years 2010 to 2012 obsessing over the fate of the eurozone during the crisis set off by Greek debt, the last few days have been a time of uncomfortable déjà vu. |
| There are messy, protracted negotiations in Brussels, a game of chicken with the entire future of European unity at risk. The talks are on, then they’re off. There are ultimatums. Details of the talks leak, as is perhaps inevitable when there are representatives of a few dozen countries, each with a domestic press they wish to spin. | There are messy, protracted negotiations in Brussels, a game of chicken with the entire future of European unity at risk. The talks are on, then they’re off. There are ultimatums. Details of the talks leak, as is perhaps inevitable when there are representatives of a few dozen countries, each with a domestic press they wish to spin. |
| But just because you feel like you’ve seen something before doesn’t mean there won’t be a different ending. | But just because you feel like you’ve seen something before doesn’t mean there won’t be a different ending. |
| If Greece ends up dropping out of the euro currency zone entirely, with unpredictable ripple effects across the Continent and the world financial system, the events of the last few days will look like a turning point that led to that moment. As of Tuesday, to be clear, markets were predicting nothing of the sort. European stock markets were down only slightly, and the value of the euro was actually up a bit. In effect, markets have seen this show before: the sturm und drang of threats and counterthreats that end in a last-minute deal. | If Greece ends up dropping out of the euro currency zone entirely, with unpredictable ripple effects across the Continent and the world financial system, the events of the last few days will look like a turning point that led to that moment. As of Tuesday, to be clear, markets were predicting nothing of the sort. European stock markets were down only slightly, and the value of the euro was actually up a bit. In effect, markets have seen this show before: the sturm und drang of threats and counterthreats that end in a last-minute deal. |
| The hedge fund manager Mark Dow offered on Twitter a way to think about the tense negotiations: “EZ bears underestimate the short-term resolve of EZ policy makers. EZ bulls overestimate the long-term viability of the exchange rate system.” | |
| Here’s what Mr. Dow is saying. We have seen again and again that this generation of European leaders, who built their careers on the altar of European unity, will eventually do what it takes to prevent the common currency from ripping apart. If this recent history is a guide, then the drama of the last few days is merely the theatrics required to get these finance ministers to arrive at a deal. | Here’s what Mr. Dow is saying. We have seen again and again that this generation of European leaders, who built their careers on the altar of European unity, will eventually do what it takes to prevent the common currency from ripping apart. If this recent history is a guide, then the drama of the last few days is merely the theatrics required to get these finance ministers to arrive at a deal. |
| On the other hand, Mr. Dow also points out, Europe really does have a big and plausibly unsolvable macroeconomic problem. | On the other hand, Mr. Dow also points out, Europe really does have a big and plausibly unsolvable macroeconomic problem. |
| You can think about it this way: Germany and a couple of other countries are operating in a radically different economic gear than Southern Europe, and the ways you might normally expect those imbalances to work themselves out are not available. In pre-euro Europe, currency swings would have handled the job. In the United States, continuing fiscal transfers from rich states to poor states do the work. Neither is a palatable option in a Europe that has a single currency and deep aversion among Germans, Finns and the Dutch to sending their hard-earned euros to Greece and Spain and Italy. | |
| Either Northern European governments will accept bigger fiscal transfers and higher inflation than their citizens want, or the Mediterranean nations with economic challenges will have to accept falling wages and high unemployment as they try to restore competitiveness, which their citizens very much do not want. | Either Northern European governments will accept bigger fiscal transfers and higher inflation than their citizens want, or the Mediterranean nations with economic challenges will have to accept falling wages and high unemployment as they try to restore competitiveness, which their citizens very much do not want. |
| These are all democracies, so something has to give politically. The Greek elections last month that swept the leftist party Syriza into power and set up the current effort to renegotiate Greece’s bailout agreement may have been that moment. | These are all democracies, so something has to give politically. The Greek elections last month that swept the leftist party Syriza into power and set up the current effort to renegotiate Greece’s bailout agreement may have been that moment. |
| The details of these negotiations actually cut across some of the usual North-South lines, with, for example, Portugal and other debtor countries apparently siding with the Northern creditor countries against Greece (we’ve taken our austerity medicine, goes the logic; you should have to do the same). | |
| But the ultimate question is which logic will prevail in these particular talks. There is the short-run possibility, which financial markets seem to believe is most likely: a deal that lets everyone save face and kicks the can of resolving those longer-term contradictions down the road. | But the ultimate question is which logic will prevail in these particular talks. There is the short-run possibility, which financial markets seem to believe is most likely: a deal that lets everyone save face and kicks the can of resolving those longer-term contradictions down the road. |
| Then there is the long-run possibility, that this standoff will force some resolution of these huge, slow-building imbalances in the European economy. In this sequence of events, Greece, the most extreme outlier on the debtor-creditor divide within the Continent, leaves the euro entirely, and in the financial and economic chaos that follows the remaining countries using the euro form tighter bonds with an eye toward ensuring there are no more defections. | Then there is the long-run possibility, that this standoff will force some resolution of these huge, slow-building imbalances in the European economy. In this sequence of events, Greece, the most extreme outlier on the debtor-creditor divide within the Continent, leaves the euro entirely, and in the financial and economic chaos that follows the remaining countries using the euro form tighter bonds with an eye toward ensuring there are no more defections. |
| The first option seems most likely this time around. But what makes this debate fascinating for anyone who cares about global economics is the mere possibility that Europe’s real day of reckoning has finally arrived. | The first option seems most likely this time around. But what makes this debate fascinating for anyone who cares about global economics is the mere possibility that Europe’s real day of reckoning has finally arrived. |