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Financial Mirror (Cyprus) - - FRONT PAGE -

the po­lit­i­cal will to cre­ate the in­sti­tu­tions that would en­able a sin­gle cur­rency to work, the dam­age is not be­ing un­done.

The cur­rent mess stems partly from ad­her­ence to a long-dis­cred­ited belief in well­func­tion­ing mar­kets with­out im­per­fec­tions of in­for­ma­tion and com­pe­ti­tion. Hubris has also played a role. How else to ex­plain the fact that, year after year, Euro­pean of­fi­cials’ forecasts of their poli­cies’ con­se­quences have been con­sis­tently wrong?

Th­ese forecasts have been wrong not be­cause EU coun­tries failed to im­ple­ment the pre­scribed poli­cies, but be­cause the mod­els upon which those poli­cies re­lied were so badly flawed. In Greece, for ex­am­ple, mea­sures in­tended to lower the debt bur­den have in fact left the coun­try more bur­dened than it was in 2010: the debt-to-GDP ra­tio has in­creased, owing to the bruis­ing im­pact of fis­cal aus­ter­ity on out­put. At least the In­ter­na­tional Mon­e­tary Fund has owned up to th­ese in­tel­lec­tual and pol­icy fail­ures.

Europe’s lead­ers re­main con­vinced that struc­tural re­form must be their top pri­or­ity. But the prob­lems they point to were ap­par­ent in the years be­fore the cri­sis, and they were not stop­ping growth then. What Europe needs more than struc­tural re­form within mem­ber coun­tries is re­form of the struc­ture of the eu­ro­zone it­self, and a re­ver­sal of aus­ter­ity poli­cies, which have failed time and again to reignite eco­nomic growth.

Those who thought that the euro could not sur­vive have been re­peat­edly proven wrong. But the crit­ics have been right about one thing: un­less the struc­ture of the eu­ro­zone is re­formed, and aus­ter­ity re­versed, Europe will not re­cover.

The drama in Europe is far from over. One of the EU’s strengths is the vi­tal­ity of its democ­ra­cies. But the euro took away from cit­i­zens – es­pe­cially in the cri­sis coun­tries – any say over their eco­nomic des­tiny. Re­peat­edly, vot­ers have thrown out in­cum­bents, dis­sat­is­fied with the di­rec­tion of the econ­omy – only to have the new gov­ern­ment con­tinue on the same course dic­tated from Brussels, Frankfurt, and Berlin.

But for how long can this con­tinue? And how will vot­ers re­act? Through­out Europe, we have seen the alarm­ing growth of ex­treme na­tion­al­ist par­ties, run­ning counter to the En­light­en­ment val­ues that have made Europe so suc­cess­ful. In some places, large separatist move­ments are ris­ing.

Now Greece is pos­ing yet another test for Europe. The de­cline in Greek GDP since 2010 is far worse than that which con­fronted Amer­ica dur­ing the Great De­pres­sion of the 1930s. Youth un­em­ploy­ment is over 50%. Prime Min­is­ter An­to­nis Sa­ma­ras’s gov­ern­ment has failed, and now, owing to the par­lia­ment’s in­abil­ity to choose a new Greek pres­i­dent, an early gen­eral elec­tion will be held on Jan­uary 25. The left op­po­si­tion Syriza party, which is com­mit­ted to rene­go­ti­at­ing the terms of Greece’s EU bailout, is ahead in opin­ion polls. If Syriza wins but does not take power, a prin­ci­pal rea­son will be fear of how the EU will re­spond. Fear is not the no­blest of emo­tions, and it will not give rise to the kind of na­tional con­sen­sus that Greece needs in or­der to move for­ward.

The is­sue is not Greece. It is Europe. If Europe does not change its ways – if it does not re­form the eu­ro­zone and re­peal aus­ter­ity – a popular back­lash will be­come in­evitable. Greece may stay the course this time. But this eco­nomic mad­ness can­not con­tinue for­ever. Democ­racy will not per­mit it. But how much more pain will Europe have to en­dure be­fore rea­son is re­stored?

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