Leading article: Beware easy fixes for the euro crisis

 

Tuesday 08 May 2012 23:28 BST
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The situation in Greece in the aftermath of Sunday's election is far from encouraging. First, the centre-right New Democracy party failed to form a workable coalition. Now, second-placed Syriza is trying for a leftist government committed to rejecting austerity measures that its leader, Alexis Tsipras, damns as "barbaric". Amid a confusion that could see voters back at the polls within weeks, all that is clear is the overwhelming disenchantment of the Greek public – both with the political class who freewheeled the country into this mess and with subsequent efforts to rescue it. Turning to either political extreme, however, is not the answer.

For all the bluster of Mr Tsipras, without the next international loan, due in June, Greece will default on its debts, with catastrophic results for itself and Europe. It is too simplistic to claim that austerity-focused Germany must cut Greece some slack. Even leaving aside Berlin's domestic political issues, such a move would immediately reignite the panic in the bond markets threatening Spain, Italy and even France.

It is also too easy to conclude that Greece's exit from the currency union is somehow inevitable. It may be true that the country's problems would be more solvable were it in control of its currency. But that is not the starting point, and going back to the drachma comes with vast and unquantifiable risks belied by the glibness with which the option is often discussed.

That said, there are still options for easing the burden on Greece. The future of the eurozone cannot rest on austerity in Greece alone; nor can the Greeks be expected to face successive years of recession with no prospect of reprieve.

Until the necessary austerity in over-indebted euro countries is accompanied by looser fiscal policy, and a concomitant rise in demand from healthier counterparts – notably Germany – the response to the crisis remains dangerously lopsided. There is also scope for a Marshall-style programme of targeted foreign investment to provide some much-needed immediate stimulus. But Europe must act, and act quickly. More than anything, the political ructions in Greece are a sign that time is running out.

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