The unusually tight alliance between former French President Nicolas Sarkozy and German Chancellor Angela Merkel -- and the expected compliance from Greece -- that has seen Europe reluctantly through the continent's financial crisis for the past four years is over.
That is to say the era of attempting the impossible is over. Some would say the era of keeping Greece in its place is over, as the argument in Europe roughly mirrors a Democratic and Republican debate in Washington. In United States, the grand debate involves blaming Democrats for encouraging home ownership or, in turn, blaming Republicans for exploiting that. Across Europe, the debate is whether or not Greece was irresponsible or, in turn, arguing that the euro gave such an arbitrary advantage to Germany and France that the southern countries -- Spain, Portugal and Greece -- never had a fighting chance.
The debate may be moot soon. In Europe, leaders are now working out contingency plans for a Greek exit from the eurozone, the 17 counties that use the euro as currency..
New leadership in Athens is vowing to forget pledges of austerity made by former administrations that would allow Greece to continue accepting emergency bailout funds. For now, that means Greece may be forced to abandon the euro and, with blessings or without, the euro can survive without Greece. But can it survive without Spain or Portugal? Or Italy? How long is the international financial stability program going to last if its first headline rescue effort turns into a disaster? Not many countries will chip in hundreds of millions of euros to an international rescue facility with that much egg on its face.
Further, the program is clearly mirroring a bout of individual depression, where a therapist reminds a patient not to let negative feelings turn into negative decisions, turning a perceived problem into real one.
That's a long way of saying Europe chose to tame government debt at the speed Germany could afford, not the speed that Greece could afford. The financial crisis (the perceived problem) has become a very real economic problem, as much of Europe is already in a double-dip recession with the Organization of Economic Cooperation and Development warning that a "spillover" is likely. Europe's recession, the OECD said, is very likely to affect the United States and Asia. It's too big a problem for anyone to ignore.
Is the cure fatal? Leaders in Washington should take note that everyone wants the U.S. debt -- $17 trillion -- reduced, but let's not go too fast on this one. The economy here won't support paying down that much debt all at once no matter how passionate (say hello Tea Party) the desire to do so might be.
Let's not forget how this thing works. Debt is a matter of leveraging the future. Governments should certainly be responsible about that, but there's a lot of future out there. That's one resource that won't run dry.
If Greece goes into default, there willl be little need to debate the point. In Europe, the cure helped kill the patient. It's right there on the chart.
In international markets Thursday, the Nikkei 225 index in Japan was flat, up 0.08 percent, while the Shanghai composite index in China slipped 0.53 percent. The Hang Seng index in Hong Kong shifted lower, down 0.64 percent, while the Sensex in India added 1.72 percent.
The S&P/ASX 200 in Australia lost 0.28 percent.
In midday trading in Europe, the FTSE 100 index in Britain gained 1.46 percent, while the DAX 30 in Germany rose 0.7 percent. The CAC 40 in France climbed 1.21 percent, while the Stoxx Europe 600 rose 0.95 percent.