Call it the Grecian financial formula. It provides a glossy, deceptive appearance, turning the old to new, dross into gold. The best part is that, for at least awhile, you can fool others into mistaking fading powers for youthful prowess.
Something like this has happened in Greece, which has suddenly gone from being able to cover up its fiscal shenanigans to becoming the mendicant of the European Union. Americans are staring at Greece, wondering if its fate will become theirs-an aging population, low productivity and growth, a corrupt national government, ballooning entitlements and political paralysis-all ending in bankruptcy. A presidential commission is meeting today at the White House to begin its examination of reducing the deficit, which the Congressional Budget Office says may reach 90 percent of the economy by 2020. According to commission co-chairman Alan K. Simpson, "Greece is sinking on debt and deficit, Spain's next, Portugal's next. How'd you like to be the United States of America when China pulls the tin cup and says, ‘We don't want T-bills, we want money'?" Today's Washington Post quotes Senator Judd Gregg as saying, "After stopping a terrorist with a weapon of mass destruction, this is the single most important issue we confront as a nation."
But for no country does the Greek debt bomb loom more explosively than Germany. For Christian Democratic Chancellor Angela Merkel, who is in a coalition with the liberal Free Democrats, the Greek plea for financial aid could not come at a worse moment. On May 9, state elections will be held in the state of North-Rhine Westphalia. Voters in Germany are in an uproar over the promised loans to Greece and could deliver a shattering blow to Merkel's coalition. The Free Democrats, who are a classically liberal party and preach free-market economics, have remained noncommittal about aiding Greece, which is political poison in Germany. FDP economic spokesman Juergen Koppelin says that the answer to Greece's request for aid may have to be "no," unless it imposes real cuts. He also says that Greece may have to leave the Euro zone until it has a satisfactory austerity plan. For her part, Merkel says she won't sign on to a proposed $60 billion bailout unless the Greeks impose true austerity cuts.
The Greek crisis has thus been extremely revealing. One thing it has shown is the limits of European unity. When times were flush, the Germans had no compunction about mouthing shibboleths about the importance of unity. No longer. Germany is asserting its own national interests rather than burying them in Europe. In this regard, Merkel could end up becoming the gravedigger of the European project. The irony is that she herself is the protégé of Helmut Kohl, the last great German exponent of unifying Europe.
The other thing that the Greek crisis has revealed is the debility of Europe's economies. Germany has long been the economic motor of Europe. Now it is worried that Greek's economic fate could be its destiny as well. In an extremely illuminating essay in the April 27 Der Tagesspiegel, the academic Gunnar Heinsohn points out that Germany is in serious trouble as well-it's becoming "older, smaller, unqualified, and indebted." Yes, Germany continues to excel at innovation and exports. But time is not on it side. Old Europe, you could even say, keeps getting older. And the implications for the flagship of European unity, the Euro, are obvious.
For the United States the events in Europe should come as a salutary shock. There's still time to get its fiscal house in order. But it's also the case that economic growth is going to be essential to avoid the debt trap. Immigration, innovation and flexible tax policies are all going to be key to avoiding the fate of Europe, which looks increasingly sclerotic. America has always admired Greece as an ancient model of democracy. But for now the Grecian formula offers a powerful object lesson of what to avoid. Toward Greece, America, you could say, should once more feel indebted.
Jacob Heilbrunn is a senior editor at The National Interest.