Greece’s crisis could torpedo Europe’s recovery

It has come to this. A year after rescuing Greece from default, Europe is staring into the abyss. The bailout has proved insufficient. Greece needs more money, and it can’t borrow from private markets, where it faces interest rates as high as 25 percent. But Europe’s governments are reluctant to advance more funds unless other lenders — banks, bondholders — absorb some losses by writing down their debts. This, however, would constitute a default, risking a broader banking crisis that might torpedo Europe’s fragile recovery in France, Germany and elsewhere. There is no easy escape.

What’s called a “debt crisis” is increasingly a political and social crisis. Looming over the financial complexities is the broader question of the ability — or willingness — of weak debtor nations to endure growing hardship to service their massive government debts. Already, unemployment is 14.1 percent in Greece, 14.7 percent in Ireland, 11.1 percent in Portugal and 20.7 percent in Spain. What are the limits of austerity? Steep spending cuts and tax increases do curb budget deficits, but they also create deep recessions, lowering tax revenue and offsetting some of the deficit improvement.

Just how long this grinding process can continue is unclear. In Spain, the incumbent socialist party lost big in recent elections. Popular unrest persists in Greece amid signs — reports The Post’s Anthony Faiola — of a “resurgence of an anarchist movement” there and elsewhere.

Some causes of Europe’s plight are well-known: the harsh recession following the 2008-09 financial crisis; aging populations coupled with costly welfare states. But there’s also another, less recognized culprit: the euro, the single currency now used by 17 countries.

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