Is Greece’s tragedy in its final act?

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After months of market turmoil, Greece’s government succumbed to reality and asked for a $60 billion bailout from its Eurozone compatriots and the International Monetary Fund. The rescue, once it is finalized, will likely calm markets for a while, since it will at the very least ensure Greece won’t default on its massive pile of sovereign debt in the short term.

I’d like to be the bearer of good tidings (for a change) and declare the Greek debt crisis officially over. But unfortunately I can’t. Greece is far from out of the danger zone. And for that matter, neither is the entire Eurozone. The Greek debacle is raising some serious questions about the future of Europe’s monetary union, questions, I fear, the Europeans aren’t really prepared to answer.

First, Greece’s immediate future looks ugly. IMF bailouts are not an automatic fix. I covered the Asian financial crisis of 1997 in Seoul, South Korea, and the IMF package set in place for that country only calmed markets for a few days before they resumed their downward spiral. Simply having the IMF around wasn’t enough to convince international investors and bankers that Korea was a safe place to invest money. Greece’s circumstances are different – Korea was facing a financial crisis, not a sovereign debt crisis — but the point is the same. Investors had to be convinced that (1) the international community was really, truly backing Korea’s solvency and (2) that Korea was willing to make the necessary reforms to rebuild its economy.

Unfortunately Greece and the Eurozone still have some major confidence-building left to do. The Europeans have so far shown only a grudging willingness to step in and help Greece, and public sentiment in countries such as Germany is clearly dead set against bailing Greece out. I’m guessing that investors will remain nervous until they’re absolutely certain bailout funds aren’t going to get bogged down in a European political quagmire.

There’s likely even less confidence that Athens can fix up its own fiscal mess. The IMF is likely to impose some pretty harsh conditions on Greece – steep budget cuts and other economic reforms — in return for its bailout cash. If Athens can’t meet those requirements, the money will stop flowing, and the default crisis starts all over again. With the degree of economic pain the IMF conditions are likely to cause, and the vociferous opposition to any austerity package in Greece, it is still very unclear if Athens can put itself on a long-term path to health, even with IMF backing.

But what worries me even more is that the Europeans don’t seem to be asking the really hard questions, about why Greece got into such trouble, and what Greece’s problems tell us about the entire single-currency experiment itself. Monetary union was supposed to bring strength and stability to Europe, to help the region compete with the U.S. and a rising Asia. It was supposed to boost investment and help the poorer members benefit from greater integration with the rest of Europe. But now that Greece has gone begging to the IMF, we have to ask: Is monetary union delivering what it was promoted to do? And if not, why not?

Of course, it’s easy to blame Greece for its own problems, that Athens financially mismanaged its affairs and created its own debt bomb. But at the same time, there are two Eurozones emerging, one with stronger economies (Germany, France), the other with a bunch of debt-ridden basket cases (Greece, Spain, Portugal). There is simply too much disparity between Eurozone countries. You have a Netherlands with unemployment at around 4% sharing the same currency with Spain, which has a jobless rate at 19%. While countries like Greece run large current account deficits, others, such as Germany, run big surpluses.  Some parts of the Eurozone are just not as competitive as others, and being part of the Eurozone isn’t helping them become more competitive.

The steps being taken to solve the Greek crisis today are not in any way changing that bigger picture. Despite the lessons that should have been learned from the Greek debacle, there’s no movement towards dealing with the Eurozone’s weaker members in any fundamental way. Clearly there is a need for the Eurozone nations to get together and start proactively handling the debt problems of other members to avoid more Greek-style meltdowns in the future. But even more, what Greece, Spain, Portugal and others need isn’t bailout money from the rest of Europe, but the investment and jobs that would create healthier economic growth, increase tax revenue and take pressure off government budgets. What the Eurozone needs is a more comprehensive effort to encourage richer European nations to invest in and support the poorer ones. Until something like that happens, the Eurozone will remain unstable.