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Europe scrambled for ways to prop up Greece's crumbling government finances Tuesday, restoring some stability to this unlikely keystone of the global financial system and sending markets higher around the world.
But the underlying economic problems facing Greece and some other European countries mean that radical cutbacks in government spending and more social pain are likely to follow as these countries move to avert a sovereign debt crisis, in which nations find themselves unable to pay on their obligations.
Reversals of fortunes have come fast and hard, and nowhere more so than Greece.
This Mediterranean country dumped its own currency, the drachma, in 2001 in favor of the European Union's new currency, the euro. As a result, it gained unprecedented footing in financial markets. With Greek debt backed by the rock-solid euro, Athens raised billions from foreign pension funds and global banks at interest rates nearly as low as those offered to Germany, the fiscally conservative titan of Europe. Flush with easy money, government spending soared and the economy boomed.
But the underlying economic problems facing Greece and some other European countries mean that radical cutbacks in government spending and more social pain are likely to follow as these countries move to avert a sovereign debt crisis, in which nations find themselves unable to pay on their obligations.
Reversals of fortunes have come fast and hard, and nowhere more so than Greece.
This Mediterranean country dumped its own currency, the drachma, in 2001 in favor of the European Union's new currency, the euro. As a result, it gained unprecedented footing in financial markets. With Greek debt backed by the rock-solid euro, Athens raised billions from foreign pension funds and global banks at interest rates nearly as low as those offered to Germany, the fiscally conservative titan of Europe. Flush with easy money, government spending soared and the economy boomed.
Greece fills the role of sinner to perfection, but if it and the rest of the peripheral European countries are to avoid meltdown they need a core demand engine within the eurozone, writes Martin Wolf
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