Experts Call for Action as Europe's Crisis Festers

Al Pessin
August 29, 2012

LONDON — Europe's economic crisis has continued over the summer, while attention was diverted by the Olympics, the war in Syria and other news. Some experts say the situation is getting worse and requires immediate and strong action that leaders do not seem ready to take.

Greek Prime Minister Antonis Samaras has been holding another round of meetings with key European leaders like German Chancellor Angela Merkel. Samaras wants more time to implement painful reforms. As the leader of Europe's strongest economy, Merkel insists that Greece stick to the reforms and their timetable.

It is a familiar and sometimes awkward political dance, but one that after five years, experts say, has gone on too long.

"We've already lost almost five years. I think that unless there is much bolder action, unless something more is done, there's a real risk of another five years," said Jennifer McKeown, who is the chief European economist at the London consulting firm Capital Economics.

Painful choices

The German stock exchange provided evidence of the risk she cited, with a downturn immediately after the Merkel-Samaras meeting. McKeown said one way out of the crisis involves even more pain for Greece and the other troubled economies, and indeed the entire continent. And the other way out is blocked by Germany and other skeptics.

"I think the most obvious way out is for them to leave the euro and devalue," said McKeown. "The other way out is for them to get lot more support from the so-called core economies, from the likes of Germany, or perhaps from the ECB [European Central Bank]. Now, so far it doesn't seem that much is forthcoming in that respect.

The huge government debt and resulting spending cuts have spiked unemployment in Greece and other troubled economies.
And anger has spilled over into the streets, including a recent protest by government workers in Spain.

Need for decisive action

That kind of unrest is one result of sharp cuts in government spending at a time of recession, according to Professor John Van Reenen at London's Center for Economic Performance. He said long-term debt reduction is important, but he calls it "crazy" for Europe's strong economies to force the weak ones to cut their debts quickly, while they are in a long and deep recession.

"The slogan that you often hear is that 'you can't solve debt with more debt.' But that's actually wrong because in the short term, exactly what you want to do when you're in a depression is to accumulate, to spend more in order to pull yourself out," said Van Reenen.

The experts say without a new approach by key leaders, Europe's economy will likely struggle for many years to come, something that would hurt millions of Europeans, and continue to drag down the whole world's economy.