BERLIN - “It’s when the tide goes out that you find out who has been swimming naked,” the legendary investor Warren Buffett aptly remarked when the global economic crisis hit. And, as we have found out in the meantime, this is as true for countries as it is for companies. Following Ireland, Greece is now the second euro-zone member to have gotten into massive payment difficulties due to the crisis, almost to the point of national bankruptcy.
Ireland was able to resolve its problems by itself, through a restructuring policy that was painful yet unflinching. It could do so because its economy, apart from its excessive debt burden following the collapse of an asset bubble, was basically sound.
The situation in Greece is different. A restructuring of the economy will be much more difficult, because it will have to be more far-reaching. The fiscal deficit must now be redressed resulted not just from internal financial imbalances, but also from a political system that for too long time has been in denial of reality, allowing the country to live beyond its means.
Nevertheless, the European Union can neither allow Greece to slide into national bankruptcy nor hand it over to the International Monetary Fund, since other euro-zone members – namely, Portugal, Spain, and Italy – would probably be next in line to be attacked by the financial markets. In that case, the euro would be in danger of failing, for the first time seriously imperiling the entire project of European integration.