Advancing a Free Society

The Euro Crisis: Doubting the ‘Domino’ Effect

Monday, October 31, 2011

It seems everyone is worried that problems in Europe will derail our fragile recovery. For this reason, markets breathed a sigh of relief when the Europeans came up with a plan to provide yet another reprieve to Greece. The main worry, now somewhat eased, was that a Greek default would spread to countries like Italy, Spain and Portugal.

Although there are legitimate concerns about contagion, the fundamental problem facing Europe is one of governments becoming too big to be supported by the economy. Unless Europe solves its fundamental problems with meaningful structural reform, a temporary debt restructuring, no matter how clever, will fail to right the ship. Closer to home, the same issues that threaten Europe may soon become immediate concerns to Americans.

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