Greece is one of the smallest economies in Europe – its gross domestic product is about the same size as British Columbia's – yet its problems have repeatedly sparked continent-wide crises, like the one barely averted last weekend. That's because tiny Greece isn't a unique case. All of Europe is in the coal mine, and Greece is the canary.
The euro zone has spent the past seven years suffering from stagnation, high unemployment and dangerously low inflation. European leaders have mostly pursued policies designed to make the situation worse. Greece may be Europe's most distressed economy, but an entire continent is living with the same symptoms.
The deal reached last Friday to avoid an immediate debt default does not resolve the Greek crisis. It doesn't end Europe's years of recession, or lower the absurdly high levels of joblessness in Europe's worst-off economies: 27 per cent unemployment in Greece, 23 per cent in Spain, 12 per cent in Italy and nearly 11 per cent in France.
What it does is give Europe four months to negotiate a better deal for Greece, one that lowers the country's debt-service costs. Friday's deal opens the door ever so slightly. But Greece's main problem is that the country's economy has shrunk by a quarter since 2007. Without economic growth or inflation, Greece can never repay its debts.
Greece now runs a large primary surplus: leaving debt service costs aside, the Greek government takes in far more than it spends. In the midst of a depression, that's not a victory. The country is locked into a feedback loop of government spending cuts leading to economic contraction leading to more spending cuts to stay ahead of the reinforced economic contraction. Much of Europe is stuck in the same dynamic.
There's a widespread perception that Greece's problems, and those of Italy, Spain and France, are a kind of moral punishment for bad government and lazy workers. German politicians have repeatedly taken this line, which plays well in Dortmund and Dusseldorf.
But Europe's crisis is just basic, bland economics. Europe has been pursuing austerity policies designed to lead to deflation, contraction and unemployment, all of which make debt repayment more difficult. Europe's ongoing Great Recession, including a second Great Depression in Greece, is largely a man-made phenomenon.
When the recession hit, the Europeans threw an anvil into the sinking Greek lifeboat – and called it a rescue package. The new Greek government has at least had the courage to point out that one simple truth.