Austerity Faces Test as Greeks Question Their Ties to Euro

Posted by Kendall Harmon

The crisis of the euro zone has finally hit the potholed road of real politics, with the Greeks now openly questioning whether their commitment to Europe and its single currency still matters more to them than control over their own future and economic well-being.

During the two-year financial crisis, the wealthier countries of northern Europe, led by Germany, have insisted that their heavily indebted brethren in the south radically cut spending in return for emergency loans. They have stuck to that prescription even though austerity has undermined growth and increased unemployment in Greece, Spain, Portugal and now Italy, betting that people in those countries will swallow the harsh medicine because their only alternative is to default and possibly leave the euro zone altogether.

The turmoil in the government of Prime Minister George A. Papandreou means that Greece is about to call that bet. Many Greek politicians appear to be calculating, at this late stage, that they have more to lose by sticking to Germany’s terms than by risking a messy default, and even going it alone with their old currency, the drachma, outside the euro zone.

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Filed under: * Economics, PoliticsEconomyCredit MarketsCurrency MarketsEuroEuropean Central BankG20 Stock MarketThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentFederal ReserveThe United States Currency (Dollar etc)Treasury Secretary Timothy GeithnerForeign RelationsPolitics in General* International News & CommentaryEurope--European Sovereign Debt Crisis of 2010FranceGermanyGreece

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Posted November 2, 2011 at 5:31 am

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