Issue of the week: The return of the euro crisis

The euro crisis is back with a vengeance, said Robert Samuelson in The Washington Post, and it will be with us “for many years” to come. When Greece narrowly skirted default earlier this year, complacency set in. But now all eyes are on Spain, where long-term borrowing costs this week topped 6 percent, close to the level that sparked bailouts in Greece, Portugal, and Ireland. Germany has demanded that Madrid make more draconian budget cuts to get its debt under control, but such moves may plunge Spain—the EU’s fifth-largest economy—deeper into recession.

Recession? Try “full-on depression,” said Paul Krugman in The New York Times. Unemployment in Spain is nearly 24 percent, “comparable to America at the depths of the Great Depression.” Under those conditions, it’s “just insane” for Berlin to continue to insist on more austerity. That approach has triggered an outbreak of “suicide by economic crisis” in Greece, Italy, and Ireland, where an alarming number of people are taking their own lives “in despair over unemployment and business failure.” And the trend has only intensified as austerity measures have taken hold. What will it take for European leaders to see that they are driving “their economy—and their society—off a cliff”?

Don’t blame the economic misery on austerity, said Josef Joffe in Bloomberg.com. What’s holding back growth are the old “usual suspects”—overly generous welfare programs, sheltered professions, and outdated labor laws. Germany also once had high unemployment and a stagnant economy, but in 2003, it began dismantling its “lavish welfare state,” and focused on improving its competitiveness. If Spain and others want to change their economic fates, they need to abandon the bad habits that make them better at “redistributing income than at generating it.”

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What Germany is demanding that Spain do is “not just bad economics, it is physically impossible,” said Wolfgang Münchau in the Financial Times. The cuts Madrid is being forced to push through amount to “one of the biggest fiscal adjustments ever attempted by a large industrial country.” Either Spain will miss the targets, or it will “have to fire so many nurses and teachers that the result will be a political insurrection.” And while it’s Spain on the precipice today, said Matthew O’Brien in TheAtlantic.com, “tomorrow, it will be Italy.” Even France “won’t be far behind.” The longer Germany insists on cuts instead of stimulus for its troubled neighbors, “the worse the problem will get.”