The Greek Crisis and Beyond

NEW YORK – As euro-zone leaders face growing uncertainty in financial markets about the public finances of Greece and other member countries, their statements, albeit somewhat vague, underscore a much larger story – one that will force firms and investors to question their assumptions about Europe’s economic, financial, and political environment.

Let’s first dispense with a powerful emerging myth. Greece’s troubles have encouraged some to wonder aloud if the euro zone can survive its growing internal imbalances. But such doubts ignore the political and cultural factors that buttress a deep European commitment to preserve the monetary union.

The euro was created partly in order to bolster internal market efficiency and prevent currency volatility. But it is also the product of a deep-rooted European conviction that transnational institutions and economic interdependence have helped establish and sustain peace across the continent for the past six decades. In a world of weak multilateral institutions – including a G20 beset by substantial differences of opinion on basic questions – it is more important than ever that euro-zone governments bolster their collective clout in an uncertain, unprecedented, and competitive global environment.

For member states, the euro zone is simply too important to fail. That means that solutions to the many problems they now face will require adjustment to the way each of them taxes and spends. Yet, from one government to the next, the result will be massively uneven – a recurring problem during Europe’s multi-decade drive for internal currency stability. This divergence on fiscal policy has many causes, and no single shock will alter it.