Is Europe Going Over the Edge?

Economist Joseph Stiglitz posted an article "Will a Grexit Be the Lehman-Like Trigger of the Next Global Financial Crisis?" It's strange because a few months ago we heard that the Greek problem has been "solved." It now turns out that it wasn't. Stiglitz summarizes the situation thus:

they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.

The troika's forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece's voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed program.

In other words, the solution imposed upon Greece by the leadership of the European Union--the European Commission, the European Central Bank and the International Monetary Fund--is actually making the economic situation in Greece worse. Stiglitz outlines the dangers for Europe thus:

We know that the structure of the eurozone encourages divergence, not convergence: as capital and talented people leave crisis-hit economies, these countries become less able to repay their debts. As markets grasp that a vicious downward spiral is structurally embedded in the euro, the consequences for the next crisis become profound. And another crisis is inevitable: it is in the very nature of capitalism.

This is an ominous situation. The only lesson we can learn is that we need to ditch the Recessionist Economic dogma.