Another All-Downside-No-Upside Weekend For Europe

Jun 18, 2012

There would have been chaos in Europe today if Syriza, the Greek party that opposes the bailout deal, had won yesterday's election. Instead, the pro-bailout New Democracy party won the election.

And in Europe today, borrowing costs are rising for Spain and Italy, it's still unclear how Greece will weather the next few months, and unemployment rates are still over 20 percent in Spain and Greece.

We keep seeing this kind of asymmetry in Europe.

Again and again, there's some big, suspenseful event. This time it was an election; other times, it's been Europe racing to make a deal before the markets open, or before a government runs out of money.

Every time, there's the possibility of disaster if things don't go well. If things do go well, it means only that disaster is postponed. There's a huge downside, and essentially no upside. (Or, the upside is just the absence of the downside.)

For a while, this strategy — staving off immediate disaster without really addressing underlying problems — made a certain kind of sense. You could imagine the strategy buying time for normal economic growth to return, which would bring down unemployment, make debts more manageable and lower borrowing costs.

But that idea has faded. The past two weeks have seen two big events — the bailout of Spanish banks a week ago, and the Greek election yesterday — that didn't even provide the brief relief we usually see after these sorts of things.

Instead, everybody went right back to worrying about a continent that can't seem to solve its profound structural problems even as falls into a recession and a financial crisis.

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