In many places — here for instance — news outlets have conflated protests against austerity in Greece with European-wide discontent. This is a mistake. There is discontent in Europe, but what people are unhappy about differs from country to country. More importantly, the problems in these countries, even those on the debt-plagued periphery, do not pose anywhere near the kind of existential threat Greece presents. There is enough evidence to suggest that if the crisis in Greece can be contained, the rest of the Eurozone can remain on the path to recovery.
Take Ireland. Though justifiably unhappy with the state of the economy (1.4 percent GDP, 14 percent unemployment), the Irish are practically giddy about their new Taoiseach, Enda Kenny. On the one hand, a recent poll by 57% of voters feel no progress has been made on negotiating haircuts from bondholders, while 54% feel there has been no progress by the new government on the issue of recapitalising the banks. But as Michael Lewis and others have reported, the Irish have been far more willing to accept austerity demands that have come with its EU/IMF bailouts. The most headline-grabbing public act of defiance so far in that country was when a local developer drove a cement truck labeled “Toxic Bank” into the gates of parliament. No Molotov pints here.
If we take him at his word, new Portuguese PM Pedro Passos Coelho, says there is broad support for austerity in his country too. At a minimum, he has convinced EC President Barroso. “I think that the situation in terms of implementation is pretty good,” he recently said. There have not been protests since March, and even those were carried out by a coterie of grad students and were described by the FT as “irreverent” — not how one would describe those in Greece.
Finally, as I posted last week, discontent in Spain centers on a democracy deficit and jobs problem that predates the global financial crisis. Here again, the austerity program has for the most part gone smoothly. Although the IMF issued a warning this week warning of risks in the Spanish economy, it also noted that an “ambitious fiscal consolidation is underway.” Spain’s deficit fell from 11.1 percent of GDP in 2009 to 9.2 percent of GDP in 2010, “somewhat better than targeted.”
A Greek meltdown would upset all of this, and the odds of that happening remain terrifyingly high. But if European finance ministers can steer their way out of the Aegean, the rest of the Eurozone should be able to hang on.
