Debt crisis: Where do a rattled Greece and EU go from here?

Having won a confidence vote, Greek leader Papandreou sought a unity government. Europe is struggling to?stop the euro crisis now roiling Greece from spreading more catastrophically to Italy.

A stirring, patriotic speech by Greek Prime Minister George Papandreou gained him a key confidence vote, and today he vowed to set up a unity government that supports a European Union bailout and stave off spreading fears of chaos in the eurozone.??

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The vote followed days of EU and world market turmoil over Greece in the midst of?a G20 summit on the swanky Rivera, designed to showcase French and European elan.

Instead, the G20 became an emergency session on a deepening European debt crisis, and starkly raised the need for the reform of EU political and economic systems.

As Europe struggles to stop the euro crisis now roiling Greece from spreading more catastrophically to Italy, it seems at times more like Humpty Dumpty than Superman.?Its decisionmaking appears built for good weather, not bad, analysts say.

EU leaders have relied on short-term measures that have prolonged and arguably compounded a two-year crisis that is hardly over and has sapped time and energy that could have been devoted to other constructive projects.

At the G20 summit, for example, many broader issues of global hunger, climate change, and unemployment got sidetracked.

"If 17 countries with shared history and cultures and values can't solve a problem the size of Greece, how are they going to solve problems of a bigger dimension?" asks Sony Kapoor of the Brussels think tank Re-Define. "Last year, there was still a rather limited economic problem and ample political space for the EU to deal with it.... Every delay since has created an economic worsening and shrinking political space ... and now the political situation has soured beyond belief."

Whether all or even some of the king?s men can put the eurozone together again is becoming a dire question for America?s main ally in an interconnected world. It will test whether the EU will fly apart or come more strongly together.

Time to regain confidence is now

At the G20 American President Obama and British Prime Minister David Cameron made it clear to EU colleagues that the time to regain confidence in the euro and Europe is now.???

What did get decided at the G20 is an IMF oversight team to open Italy?s books to ensure it adheres to an $80-billion plus austerity program. Italy, Europe?s third-largest economy, is running a deficit of some $2.3 trillion; on Saturday, huge crowds flooded Rome to demand the resignation of the prime minister, Silvio Berlusconi.

To be fair, the depth of the problem was not seen at first, analysts say.

While notable voices cried two years ago for the world?s wealthiest region to take a firm and early stand, there has been no clear-cut "Lehman Brothers moment" or cataclysm. Irish banks passed muster just months before Ireland needed a bailout in 2010; no event seemed to necessitate a fire wall around either Spain or Italy, Europe's third-largest economy, whose debt is now 120 percent of gross domestic product.

But in the midst of Europe's worst disarray in 60 years, its leaders are criticized for not outflanking market attacks on weak states with sovereign bank debt, and for doing only enough to stave off immediate problems.

"Markets have driven the political process in Europe for 16 months," says Thomas Klau of the European Council on Foreign Relations in Paris. "People are fed up and exhausted, but it isn't over?If the Italian government fails to inspire sufficient confidence?the crisis could move to another level.?

A bailout deal to end all deals

On Oct. 26 matters came to a head, or so it seemed. A great bailout deal to end all deals was to be struck in Brussels.

After nearly 11 intense hours that stretched into the next morning, a three-part strategy emerged, finagled by German Chancellor Angela Merkel. It spoke of a 50 percent write-off of Greek bank debt and a new bailout for Greece. As EU leaders walked out on a red carpet to waiting limousines, victory was nigh.

At least, that was the official story.

Source: http://rss.csmonitor.com/~r/feeds/csm/~3/F9HGz7-q9xU/Debt-crisis-Where-do-a-rattled-Greece-and-EU-go-from-here

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