Europe's days of anxiety
Like engineers off the Louisiana coast, Europe's leaders are scrambling to stop the Greek slick from spreading. The signs of acute anxiety are everywhere.
The German Chancellor, Angela Merkel, said the rescue plan must succeed or other European countries may suffer the same fate, threatening the bloc's future. "We're at a fork in the road," she told the Bundestag, "this is about nothing less than the future of Europe and with it the fate of Germany in Europe". This dramatic assessment was, of course, intended for German voters who remain hostile to the billions they'll be loaning Greece.
The leader of the German opposition Social Democrats (SPD), Frank-Walter Steinmeier, said "it is the biggest test of European integration since the Treaty of Rome".
The fear that haunts Europe's leaders is contagion. Axel Weber, a member of the European Central Bank's governing council, said today there is a serious threat of Greece's problems spilling over and spreading to other parts of the eurozone. The head of the IMF, Dominique Strauss-Kahn, also indicated there was a risk of the crisis spreading. In early trading the euro was down again.
So what are the dangers in the days and weeks ahead?
Firstly, although Greece now has enough funds to stave off default, fears remain that further down the road it will have to restructure its debt.
The bigger question is whether the Greek government will fully implement the austerity measures it has agreed in exchange for being bailed out.
Despite the sound and fury on the streets of Athens it is unclear what a majority of Greeks feel. A couple of days ago I spoke to the head of the civil service union, Adedy, which is striking today. The union's argument was not with the bail-out; it was with the terms of the rescue. The unions are aggrieved they were not consulted and what they are after is a reworking of the terms and conditions.
The Greek government, however, has very little room for manoeuvre. Any indication that it was retreating from the deal it has signed would set off alarm signals, particularly in Germany. Austerity is the price for the German billions being loaned.
Judging support for will be important. Support for previous strikes has been lukewarm. So today will be seen as a trial of strength. If the Greek government appears vulnerable or the protests are particularly violent then the rescue deal may be in jeopardy but, so far, the violence has mainly come from the anarchist fringe.
Even if the bail-out package is implemented there are longer term risks. The Greek economy is expected to contract by 3% this year and could well be still shrinking in 2011. As it implements cuts of 30bn euros over three years where will growth come from? It might turn out that Greece will need further help or be unable to repay its huge loans.
The more immediate concern is of the crisis spreading. Already investors are fleeing to the safe havens of gold and the dollar. The Spanish strategy at the moment is to fight the rumours and to castigate the speculators. There are no plans for new austerity measures. There are indications that the Spanish economy has started to grow again and that industrial production is up.
The Spanish Economy Minister, Elena Salgado, said "in terms of the economic data we are receiving, we have positive data and we are better off than a year ago". Its debt level as a share of the overall economy is half that of Greece.
But what makes Spain vulnerable is that its private sector has huge debts.The spending cuts announced so far are judged as modest - only 2.5% of GDP. The government drew back from increasing the retirement age. Unemployment is at 21% and rising, and so far it has not embraced labour market reforms that could deliver a more flexible economy.
The risk, like with Portugal, whose deficit is set to rise to 8.5% this year, is that it becomes increasingly difficult to borrow money at affordable levels.
If that happens it is very unclear whether the eurozone countries have the appetite for further rescues. It was clearly stated at the weekend that the Greek bail-out plan was not a blueprint for others. Already we have countries like Ireland, that is struggling to reduce its own deficit, having to lend money to Greece. It is most unlikely that such generosity would extend to others. And if other countries ran into difficulty, how would Germany and its people react? One bail-out has proved a very tough sell. Further rescues may weaken the European ties that bind.
And adding to these difficulties is a European economy that remains fragile. Consumer demand is weak. The eurozone economy is set to grow by only 0.9% in 2010. Growth could stave off many of the dangers but it remains elusive.
, said "the fear that yoking together such diverse countries would increase tension, rather than reduce it, has been vindicated: look at the surge of anti-European sentiment inside Germany".
In these days of angst some very fundamental questions are being asked of Europe and its leaders.
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