Greece is
only the beginning. The
worlds leading economies
have long
lived beyond their means, and
the
financial crisis caused government debt to swell
dramatically. Now the
bill is coming due, but not all countries will
be able to pay it.

Savvas
Robolis is one of Greeces
most distinguished economics
professors. He advises cabinet ministers and union bosses. He is also a
successful author and a frequent guest on the countrys highest-rated talk shows. But for several days now,
it
has been clear to Robolis, 64, the elder statesman of Greeces
left-wing academia, that he
no longer
has any
influence.

His opposite number, Poul Thomsen, the Danish chief
negotiator for the International Monetary Fund (IMF), is currently something of a chief debt inspector in the
virtually bankrupt Mediterranean
country. He recently took three-quarters of an hour to meet
with Robolis and Giannis
Panagopoulos, the president of the powerful trade union confederation GSEE. At 9 a.m. on
Tuesday of last week, the men met behind closed doors in a conference
room in the basement of the Grande Bretagne, a luxury hotel in Athens. The mood, says Robolis, was "icy."

Robolis
told the IMF negotiator that radical wage cuts would be toxic for Greeces
already comatose
economy. He said that the Greeks,
given their weak competitive
position, primarily needed innovation
and investment, and that a one-sided fixation on cleaning up the national budget
would destroy the last vestiges of economic strength in
Greece. The IMF, according to
Robolis, could not make the same mistake as it did in Argentina in the
early 1990s. "Don’t put
Greece on ice!" the professor
warned.

But the
tall Dane was not very impressed. He has negotiated aid packages
with Iceland, Ukraine and Romania in the past, and when he and his 20-member delegation landed in
Athens on April
18, they had come to impose a
rigorous austerity program on the
Greeks, not to devise long-term growth programs.

Thomsens mandate is to save the euro zone. And
any Greek resistance is
futile.

Time to Foot the
Bill

Robolis
versus Thomsen. For the moment, this is the last skirmish between the old ideas and ideals of
prosperity paid for on credit and a
generous state, against the new
realization that the time has come to foot the bill. The only question is: Whos paying?

The euro
zone is pinning its hopes on Thomsen and his team. His goal is to achieve
what Europes politicians are not confident they can do on their own, namely
to bring discipline to a country
that, through manipulation and financial inefficiency, has plunged the European single
currency into its worst-ever crisis.

If the
emergency surgery isn’t successful, there will be much more at stake than the fate of the euro.
Indeed, Europe could begin to erode
politically as a result. The historic
project of a united continent, promoted by an entire generation of politicians, could suffer
irreparable damage, and European integration would suffer a serious setback — perhaps even
permanently.

And the
global financial world
would be faced with a new
Lehman Brothers, the American investment bank that collapsed in September 2008,
taking the global economy to the
brink of the abyss.
It was
only through massive government
bailout packages that a collapse of the entire financial system was
averted at the time.

A similar
scenario could unfold once again, except that this time it would be happening at a higher level, on the
meta-level of exorbitant government debt. This fear has had Europes politicians worried for weeks, but their crisis management efforts have
failed. For months, they have been
unable to contain the Greek crisis.

Attacked by Speculators

European
governments agree that saving Greece is imperative.
They are worried about the euro, and the Germans are concerned
about their banks, which, lured
by the prospect of high returns, have
become saturated with government
bonds from Greece and other southern European
countries. They are also terrified
that after a Greek bankruptcy, other
weak euro countries could be attacked
by speculators and forced to their
knees.

There are,
in fact, striking similarities to the Lehman bankruptcy. This isn’t exactly surprising. The financial crisis isn’t over
by a long shot, but has
only entered a new phase. Today, the world is no longer threatened by the debts of banks but by the debts of governments, including debts
which were run up rescuing banks just a year ago.

The banking
crisis has turned into a crisis of entire nations, and the subprime mortgage
bubble into a government debt bubble. This is why
precisely the same questions are
being asked today, now that entire countries are at risk of collapse, as
were being asked in the fall of 2008
when the banks were on the brink: How can the calamity be prevented without laying the ground for an even bigger disaster? Can a
crisis based on debt be solved with
even more debt? And who
will actually rescue the rescuers in the end, the ones
who
overreached?

‘Great Sacrifices’

Take, for
example, the countries that will
pay for the Greek bailout. The
country could need as much as €120
billion or €130 billion — or even more — over the next three years.

At the
weekend, euro-zone members and the
IMF agreed on a €110
billion bailout package over three years. The EU will provide €80 billion in loans, with Germanys share over three
years amounting to €22 billion,
including €8.4 billion in the first year alone. Greece will have to impose further austerity measures in return. Greek Prime Minister George
Papandreou said they would involve "great sacrifices," saying: "It is an unprecedented support package for an
unprecedented effort by the Greek
people."

Euro-zone
leaders will formally launch the package, which still needs to be approved by the German Bundestag and a number of other
euro-zone parliaments, at a summit on Friday. The aid will be released ahead of May 19, when
Greece next needs to make debt
repayments.

Caught in the
Maelstrom

The
money would be well invested if Athens succeeds in getting its state finances
under control within the
three-year time period, through rigid
austerity measures and successful
economic management.

But if it
doesn’t? Then the money, or at least
some of it, will be gone. Then all
the things that the rescue measures were intended to prevent could in fact transpire:
Lenders would have to write off their claims, banks would have to be rescued once again, speculators
would force the rest of the
weak PIIGS nations
(Portugal,
Ireland, Italy,
Greece and
Spain) to their knees — and the euro
would fall
apart.

If that happened, the rescuers themselves
would be at risk. Even
Germany, in international
terms a country with relatively sound finances, has amassed enormous debts. If it
became caught up in the maelstrom of a euro crisis, the consequences
would be unforeseeable. The credit
rating of Europes strongest economy
would be downgraded and Germany would have to pay higher and higher interest rates for more and more
loans. Future generations would
shoulder an even greater burden as a result.

But
what is the alternative? Should
Europe simply allow Greece to go bankrupt instead? In
that case, the possible future scenario would happen right away
instead.

One might
argue that it is better to get things over quickly, even if that is painful, rather than prolonging
the agony. But one can also hope that
everything will turn out for the best in the end. The euro-zone
countries prefer to hope, which is
why they
have agree to a rescue program that will provide Greece with the funds it can no longer borrow on the open market, now that it is being forced to pay such high interest rates.