Every day brings more headlines in the European debt drama: "Greece elects anti-austerity government." "Greek Finance Minister says he won't negotiate with the 'Troika.'" "Anti-austerity movements gain ground across Europe." What's behind these stories? What does the future hold? Are there any implications for the U.S.? Here's an overview of the situation as it currently stands.
For all the media frenzy, the complacency of economists, the trumpets announcing a new era, Europe does not want to understand the basic situation it is in. Finance cannot bail Europe out. Only a profound transformation of a regime it cannot sustain will rescue it. Will we need Italy to collapse or another major banking crisis to wake Brussels up?
Germany has the most unequal distribution of wealth in the eurozone. In this sense, Germany faces the same challenge as China: a high-export and saving economy which needs to rebalance through policies that create a greater flow of wealth to households, thus spurring greater consumption. This, in turn, can create demand for imports from Germany's European neighbors.