Smaller creditor countries, such as Finland and the Netherlands, may be reluctant to lend more. But in Germany, every political leader and most voters are fully aware of these political, moral and economic necessities, and pro-euro parties have won every major electionsince the crisis erupted.
4. If austerity measures continue, voters will revolt and extremists will take over.
One of the most amazing aspects of the euro crisis so far is that the political center has held in every debtor country. Incumbent governments have been rejected in all of them, but radical alternatives from both the left and the right have been rejected even more soundly.
Portugal and Ireland have stuck to the austerity commitments required as part of their bailouts, while Spain and Italy have gone beyond, with more spending cuts, higher taxes and major labor-market reforms. Only Greek voters flirted with a rejectionist party, but a bank run quickly forced them to reverse course.
The Europeans have now added a crucial growth dimension to their emphasis on austerity, adopting jointly financed infrastructure investments and pro-growth reforms that will further solidify political support.
5. The euro crisis will tank the U.S. economy and could even swing the presidential election.
No doubt, the downturn in Europe has dampened exports and corporate profits in the United States, weakened employment and investor confidence, and cut perhaps 1 percent off our gross domestic product. Macroeconomic Advisers estimates that a collapse of the euro would produce a renewed recession here over the next year and an unemployment rate above 9 percent at least through 2013.
But the world’s emerging economies, led by China and India, account for half of the global economy and will continue to expand at about 6 percent annually for the foreseeable future. This is slower than before, but such growth will keep the global economy — including the United States — churning for some time.
In addition, the United States derives important benefits from Europe’s troubles because the crisis diverts global capital into the dollar, especially Treasury securities, keeping our interest rates low and thus fueling at least a gradual recovery of housing and consumer demand.
The likelihood that Europe will continue to muddle through will protect us — and our election — from major economic repercussions.
C. Fred Bergsten has been the director of the Peterson Institute for International Economics since its creation in 1981.