Earlier there were a lot of people saying good things about how Europe managed to come to a solution for the Greek debt crisis and satisfy multiple conflicting countries while the US spent much of this year with only 2 parties arguing over a solution.
The the solution unravels. Then it doesn’t. Then …
After the efforts by the Euro-zone to help Greece, the Prime Minister said he wanted a referendum (with no details on what would be the exact choice). After the markets went into a tizzy and the other Euro-zone leaders were heard from, Prime Minister Papandreou has backed off on the referendum idea.
It wasn’t clear whether the market up swing today was the result of dropping the referendum or the result of stories that Papandreou’s government would fall. (In a parliamentary system falling isn’t the same as in a dictatorial system.) Both of these stories were available to traders.
Either way, it may not matter in the long run for Greece. Without economic growth their economy will slowly (or rapidly) decay much like the monuments that draw the tourists. Maybe their best hope for economic growth is Economic Tourism: come see what can happen if you don’t expand your economy.
The Greek experience has important lessons for the US (and the rest of Europe). Not that debt is bad (or good, or relevant), but that you do not shrink your way out of a recession. So far, not many leaders have recognized this. Obama has to a small extent, though he frequently pays tribute to the cut the deficit idols. None of the Republican hopefuls seem to recognize this basic economic fact. They have not moved beyond the cut spending and the economy will grow approach. This does not create jobs, it only makes the so-called job creators so nervous that they sit on all their accumulated income. Maybe they need the threat of taxes to actually spend it on creating jobs.