Price of solidarity

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Europe's yearlong test of solidarity is bumping up against a hard truth about recessions, an adviser to the European Commission said.

Paul De Grauwe, an economist who serves as a consultant for Jose Manuel Barroso, president of the commission, told The New York Times, "History shows us that you cannot cut deficits in the midst of a recession."

Hold that mirror up to Europe today and what you see is that tough austerity measures and the terms of the international bailout for Greece are doing exactly what everybody feared in the first place: Making it harder for Greece to get back on its feet, the Times reported.

Draconian austerity measures pare down expenses to the bare minimum, but offer little stimulation for an economy to prosper. In short order -- in about a year in this case -- Greece was left with the possibility of defaulting on its international loan with only one counter-intuitive solution on the table: lending the country even more money.

It is easy to see how many would believe that is simply tossing good money after the bad.

Yields on 10-year Greek bonds soared to 16.8 percent Monday with the euro flirting with a two-month low at $1.4092. Benchmark rates in Italy rose to 4.8 percent, pushed in part by credit rating agency Standard & Poor's, which shifted Italy's high rating from stable to negative on Friday. In Spain, 10-year bonds hit 5.5 percent.

Where eurozone solidarity starts to unravel is in the debate on who takes the losses on a default. Understandably, the European Central Bank, which holds $64 billion in Greek bonds, is opposed to bondholders taking on the loss; after all, the role of the ECB in the past year was to include the decision to purchase Greek debt even when it was lowered to junk status. At the time, that gesture was hailed as a critical lifeline that helped stabilize the euro and stop the spread of panic through financial markets.

In international markets Tuesday, the Nikkei 225 index in Japan rose 0.17 percent and the Shanghai composite index in China fell 0.27 percent. The Hang Seng index in Hong Kong was flat, rising 0.09 percent and the Sensex in India rose 0.1 percent.

In Australia, the S&P/ASX 200 index fell 0.3 percent.

In midday trading in Europe, the FTSE 100 index in Britain rose 0.59 percent while the DAX 30 in Germany gained 0.84 percent. The CAC 40 in France added 0.42 percent and the Stoxx Europe 600 index rose 0.42 percent.