A European Union (EU) flag, left, and Greek national flag fly near the Parthenon temple. (Bloomberg)

Remember when the question was simply "whether" Greece would default? Good times. Now the question is how Greece will default. And there are two options: "orderly" and "disorderly." Orderly isn't great, but at least the markets are expecting it. Disorderly, however, could be quite bad. Josef Ackermann, chief executive of Deutsche Bank, tells the FT it could open "a new Pandora's box" in the Eurozone crisis. And disorderly is starting to look likelier.

The problem, put simply, is that "the Troika" -- the IMF, the EU, and the European Central Bank -- want more concessions than the Greek political system seems to be capable of making. They want the minimum wage cut by 25 percent. They want supplementary pensions cut by 35 percent. They want to close 100 state-run organizations that will cost thousands of jobs. And they want all this done voluntarily by the politicians in a country that has gone, in a few short years, from 7.5 percent unemployment to 18.8 percent unemployment. And if it's not done, the next bailout won't come through, and Greece's default will become disorderly -- with untold, but clearly disastrous, consequences for both Europe and the United States.

So will it happen? A few weeks ago, the Peterson Institute for International Economics hosted a debate on the future of the Eurozone crisis. Simon Johnson and Peter Boone took the pessimistic side. They argued, persuasively, that the Eurozone authorities had continuously proven themselves unable to solve this crisis. They showed how each successive bailout and intervention had failed to arrest the market's panic for any extended period of time. They laid out the impossible math of a real solution, and the many, many tripwires that could unravel the whole thing. Their answer, in other words, was clear: Yes, Greece will fall apart. Or, if it's not Greece, it will be something else. And it will likely happen soon.

Jacob Funk Kirkegaard and C. Fred Bergsten played the optimists. They argued, again persuasively, that the Eurozone authorities had continuously proven themselves unwilling to permit the dissolution of their currency union. They showed how the doomsayers had predicted, again and again, that the Eurozone had reached its do-or-die moment, and either there would be a full rescue or a total collapse, and how, in each case, Europe managed to muddle along. They emphasized the enormous cost, even to the rich countries, of any sort of break-up, and the immense -- and to most Americans invisible -- bonds of history and politics that make this more than a mere economic calculation. Their answer was also clear: The Eurozone and the ECB will not allow Greece, or any other members country, to truly fall apart.

The resulting argument sounded like nothing so much as a debate between physicists. In physics, the central problem is that separate sets of rules govern big things and small things. The workings of the big stuff are best described by the general theory of relativity. The small stuff works according to quantum mechanics. But on some basic level, this doesn't make sense: the big stuff is made of the small stuff. There must be some way to bring the two into one theory.

And so it is in Europe. Johnson and Boone are right about the micro picture. If you look at the economic and political decisions that need to be made for the Eurozone to survive the next year, it looks completely impossible. On the day-to-day level, the rules that govern the Eurozone clearly imply a coming catastrophe. But Kirkegaard and Bergsten are right about the macro picture. The IMF, Germany, France, the ECB, and others will do anything to keep the currency union from dissolving. On the big question, they are united, and they have, thus far, been both unwavering and successful in their defense of the Eurozone.

So the question as we look towards Greece's troubles today and the Eurozone over the next year is whether the rules governing the macro question -- whether the Eurozone will survive -- trump the rules governing the everyday panics and political decisions that imperil its survival. Or perhaps there's some theory that can bring them both together. The answer to this question, perhaps more than any other, will decide whether Obama's momentum continues, or fizzles out amidst a new economic crisis.

Top stories

1) Mitt Romney scored an overwhelming victory in Nevada, reports Dan Balz: "Mitt Romney secured an overwhelming victory in Saturday’s Nevada caucuses, giving the former Massachusetts governor his second consecutive win of the year as he tightened his claim to dominant front-runner status in what had been a turbulent Republican presidential race. After his easy victory in Florida on Tuesday, Romney’s win in Nevada, where he also emerged on top four years ago, will provide additional momentum heading to Tuesday’s caucuses in Colorado and Minnesota and set him up for more significant primaries in Michigan and Arizona at the end of the month. The outcome will increase pressure on his rivals to demonstrate how and where they plan to stop him, if they can...Romney was far ahead of his closest rivals. Former House speaker Newt Gingrich and Rep. Ron Paul (Tex.) were battling for second place. Former Pennsylvania senator Rick Santorum was running fourth. Counting in Clark County was extremely slow late Saturday, delaying final results."

2) But polling now puts him far behind President Obama, report Dan Balz and Jon Cohen: "Boosted by improved public confidence in his economic stewardship, President Obama for the first time holds a clear edge over Republican presidential candidate Mitt Romney in a hypothetical general-election matchup, according to a new Washington Post-ABC News poll. Romney, who notched his second consecutive victory Saturday by easily winning the Nevada caucuses, continues to solidify his position as the front-runner in the race for the GOP nomination. But as the contest has grown more negative, public impressions of the top Republican contenders have soured, as has the former Massachusetts governor’s standing as a general-election candidate...Overall, 55 percent of those who are closely following the campaign say they disapprove of what the GOP candidates have been saying. By better than 2 to 1, Americans say the more they learn about Romney, the less they like him.

3) Greek debt negotiations are in crisis, report Kerin Hope, Alex Barker and Quentin Peel: "Lucas Papademos, the Greek premier, failed to make party leaders accept harsh terms in return for a second €130bn bail-out, pushing Athens closer to a disorderly default as early as next month...After five hours of discussions, the three leaders of Greece’s national unity government had not accepted demands by international lenders for immediate deep spending cuts and labour market reforms as part of a new medium-term package. Mr Papademos said the political leaders had agreed on some 'basic issues', including making spending cuts this year of 1.5 percentage points of gross domestic product, or about €3bn, according to a statement from his office."

4) Restrictions on abortion have energized abortion rights advocates, reports Sarah Kliff: "States passed 92 abortion restrictions in 2011, more than double the total in any other year over the past three decades. Last year was also when the abortion debate expanded beyond a woman’s right to terminate a pregnancy. While the Hyde Amendment has long prohibited federal funding of abortion, antiabortion activists have pushed for more stringent restrictions. They turned to national and state legislators to bar abortion providers, such as Planned Parenthood, from receiving funds for other services they provide, such as cancer screenings and contraceptives...Planned Parenthood says its e-mail list increased by 1.2 million people last year, half of whom were under 35. In the 24 hours after the Komen funding news broke Tuesday, 6,000 online donors contributed $400,000. On an average day, the group receives 100 to 200 donations."

5) The GOP infrastructure bill faces an uphill battle, report Jake Sherman, Adam Sinder and Burgess Everett: "The road to passing Speaker John Boehner’s energy and infrastructure bill looks to be as bumpy as the highways it’s trying to fix. GOP leaders insist they will bring their energy-expanding and road-building plan to the floor this month, but it’s clear they have a ways to go before uniting the Republican Conference. And thanks to controversial additions like oil drilling in the Arctic National Wildlife Refuge and the Keystone XL pipeline, Democrats won’t be any help. In short, the shiny, job-creating object of the GOP’s first-quarter agenda is facing an uphill battle. Behind closed doors, there have been a slew of questions about the legislation. The Republican Study Committee’s meeting Wednesday was dominated by discussion about the funding offsets for the bill, which includes expanded oil-drilling leases in ANWR and off both coasts. There are also those who question the gas tax’s efficiency in funding road-building, since cars are consuming less fuel."

Top op-eds

1) The good jobs report shouldn't be an excuse for inaction, writes Paul Krugman: "In a better world -- specifically, a world with a better policy elite -- a good jobs report would be cause for unalloyed celebration. In the world we actually inhabit, however, every silver lining comes with a cloud. Friday’s report was, in fact, much better than expected, and has made many people, myself included, more optimistic. But there’s a real danger that this optimism will be self-defeating, because it will encourage and empower the purge-and-liquidate crowd...This encouraging employment report shouldn’t lead to any slackening in efforts to promote recovery. Full employment is still a distant dream -- and that’s unacceptable. Policy makers should be doing everything they can to get us back to full employment as soon as possible. Unfortunately, that’s not the way many people with influence on policy see it."

@DLeonhardt: The econ just had its best 12 months of job growth (+1.95m) in five years.

2) The change in unemployment -- and not the level -- is what matters for 2012, writes Lynn Vavreck: "How fundamental is the state of the nation’s economy to election outcomes? So fundamental that 75 percent of the time forecasters can correctly predict which party will win the general election without even knowing the candidates’ names. In fact, they can do this months in advance of the election, before the party conventions. But they’re not looking at what many pundits and politicians think they’re looking at. The conventional wisdom in Washington is that the unemployment rate will likely decide the election. This even appears to be what Mitt Romney thinks. But it’s wrong...While the unemployment rate itself has little relationship to incumbent party vote shares, the change in this rate between the fourth to second quarters is a good predictor of incumbent fortunes. A 1 percent drop in the unemployment rate yields a half-a-point increase in incumbent vote share. That suggests the latest jobs numbers are, just as you would think, very good news for Obama."

3) Manufacturing shouldn't get special support, writes Christina Romer: "A successful argument for a government manufacturing policy has to go beyond the feeling that it’s better to produce 'real things' than services. American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada...As an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. So far, a persuasive case for a manufacturing policy remains to be made, while that for many other economic policies is well established."

4) The GOP should stop invoking Reaganomics, writes Bruce Bartlett: "Judging from the candidates’ tax proposals, they seem to believe that the most Reagan-like candidate is the one with the biggest tax cut. But as the person who drafted the 1981 Reagan tax cut, I think Republicans misunderstand the premises upon which Reagan’s economic policies were based and why those policies can’t — and shouldn’t — be replicated today."

5) Legalized bribery is the logical endgame for campaign finance deregulation, writes Steven Pearlstein: "Thanks to Kennedy and his colleagues, the 1% has funneled tens of millions of dollars to the new campaign 'super PACs,' those independent groups run by former campaign aides that are prohibited from 'coordinating' their efforts with the official campaigns (wink, wink). Already, super-PAC fundraising and spending has exceeded that of the campaigns. By the time the 2012 election cycle is finished, don’t be surprised if super-PAC spending reaches into the billions. And why not? The prospect of another four years of Barack Obama in the White House, or a return of Democratic control in Congress, could cost businesses and wealthy investors tens of billions of dollars in additional taxes or foregone profits due to job-killing regulation. Why not spend a couple of billion every election cycle to insure themselves against such catastrophe?"

@ezraklein: The Pearlstein column is a good reminder: the key question for campaign-finance reform is who appoints the next Supreme Court justices.

Piano rock interlude: Fiona Apple plays "Paper Bag" live on The Today Show.

Got tips, additions, or comments? E-mail me.

Still to come: Greek debt negotiations near the end; Komen's defunding boosted Planned Parenthood; Congress tries to get around its earmark ban; the GOP infastructure bill is struggling; and a baby finds eating cheerios funny.


The jobs report is unlikely to change the Fed's commitment to low rates, reports Jon Hilsenrath: "A few more months of strong jobs reports like the one released Friday, and the Federal Reserve might need to draw up a new game plan. For now, though, Fed Chairman Ben Bernanke seems unlikely to rewrite his script for the central bank. The Fed said after its Jan. 25 meeting that it expected to keep short-term interest rates pinned near zero until at least late 2014, an ultra easy-money policy meant to spur borrowing, spending, investment and broader economic growth...The drop in unemployment to 8.3% in January marks exactly the kind of progress the Fed wants to see the economy making. But after more than two years of false starts, and with many clouds still on the economic horizon, the Fed's top decision makers seem unlikely to believe economic growth and job creation are really ramping up until they see much more."

Negotiators may finalize a deal on foreclosures this week, report Ruth Simon and Nick Timiraos: "They've been here before, but this time, they say it is for real. After a yearlong haul that has featured numerous false starts, federal and state officials aim to wrap up this week a multibillion-dollar agreement with five major banks to settle probes of alleged foreclosure abuses. State attorneys general must indicate by Monday whether they are signing on to the deal, said one person familiar with the negotiations, a key test of whether banks and federal officials will be able to wrap up a deal. The Monday cutoff marks a step back from the previous deadline of last Friday--a delay that is emblematic of what has been a vexing process. Government officials have been aiming for a deal valued at $25 billion in loan write-downs, refinancings and other homeowner assistance, as well as cash penalties, with Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co."

A business equipment tax break has been a surprising success, reports Binyamin Appelbaum: "A corporate tax break for buyers of computers, engines and other equipment is proving surprisingly popular, depriving the federal government of tens of billions of dollars in expected revenue and increasing the amount it will need to borrow this year. The Congressional Budget Office said this week that corporate income tax receipts were $10 billion below its expectations in the fiscal year that ended in September, and that it had reduced the anticipated amount that the government would collect for the current fiscal year by $29 billion...But there may be a silver lining. The tax break aims to stimulate investment, and it seems to be working. Corporate spending on equipment has grown faster than any other category of economic activity over the last two years, raising the pace of overall growth. And the government projects it will eventually recoup about 80 percent of the money because companies that benefit now often face higher taxes later."

The drought in office construction may lead to higher rents, reports Eliot Brown: "Office-building construction is in the midst of a severe drought. This means higher rents may be on the horizon in some cities, if history is any guide. In the U.S. last year, developers broke ground on office buildings with a total of just 56 million square feet of space, the lowest level tracked by McGraw-Hill Construction since at least 1960. Even during the early 1990s, in the aftermath of a surge of construction a decade earlier that left cities around the country dotted with empty office buildings, the U.S. never dropped below 80 million square feet of new office-building construction a year, according to McGraw-Hill. And analysts don't expect construction to pick up anytime soon. Part of the reason for the low level of construction is that vacancy rates stood at 17.2% at the end of 2011, up from 12.3% in 2007, according to real-estate-research firm Reis Inc. And while the economy added 243,000 jobs in January, given the overall sluggish pace of the recovery, it could still take a few years to fill the empty office space."

Historical correspondence interlude: A letter to 16-year-old Jackson Pollock from his father.

Health Care

@petersuderman: Komen is a mission-focused philanthropy. And regardless of which side of the story you're on, it's now clear they're hurting the mission.

The Komen debate boosted Planned Parenthood, report Anna Palmer and Robin Bravender: "Planned Parenthood has been under siege for a year, but in three days it managed to recast its controversial image thanks to a fight with Susan G. Komen. When House Republicans voted to defund Planned Parenthood a year ago, the usual suspects came to the group’s aid, like liberals and Democrats in Congress. But when Komen announced last week it planned to pull grants for breast cancer screenings, they got an unexpected response: the Internet exploded with thousands of angry supporters and others who gave the group $3 million. Komen changed course Friday and Planned Parenthood claimed a win on an important source of power in Washington -- angry, organized voters...It’s not clear what effects the Komen fight will have on Planned Parenthood funding going forward - the lawmaker whose investigation spurred the Komen move, Rep. Cliff Stearns, has showed no sign of backing down."

Domestic Policy

The House passed a long awaited aviation bill, reports Ashley Southall: "The House on Friday approved $63 billion to pay for federal aviation programs through 2015, acting after five years of dispute and 23 short-term extensions of financing that the Federal Aviation Administration said made it harder to carry out its mandate. The bill provides money for airport construction and expansion, for upgrading air traffic control systems to use Global Positioning System technology, and for an expansion of the use of unmanned drones in domestic airspace, among other things. The measure, a compromise between the Republican-controlled House and Democrat-controlled Senate, passed on a 248-169 vote. A majority of Republicans supported the bill, while Democrats overwhelmingly opposed it. The Senate is expected to approve the bill next week, sending it to the White House for President Obama to sign."

Congress is trying to get around its earmark ban, reports Ron Nixon: "Members of Congress may no longer be able to direct federal money to projects back home because of a moratorium on legislative earmarks, but that has not stopped them from trying. A coalition of budget watchdog groups says that in the absence of the age-old practice of Congressional earmarks, the legislative tools that let members attach pet projects to bills, lawmakers appear to have found a backdoor method: special funds in spending and authorization bills that allow them to direct money to projects in their states. The latest example, the groups say, is the recently passed budget for the Army Corps of Engineers. Budget documents show that Congress included 26 different funds -- totaling $507 million -- for the corps to spend on various construction, maintenance and other projects that were not included in President Obama’s budget or the final spending bill."

There's a new push to teach entrepreneurship, reports Anjli Raval: "In his recent State of the Union address, President Obama again stressed the importance of innovation and financial support for entrepreneurs for long-term job growth. Business schools too have recognised the importance of investing in entrepreneurship, particularly after the banking scandals of 2008-09, which saw the subsequent breakdown of trust in business. Fostering an environment for budding entrepreneurs has been significant for both schools, which have questioned how to rebuild the tarnished MBA brand, and students, who are less likely to get high-powered corporate jobs in an increasingly uncertain economic climate. Against a backdrop of turbulent global markets, unemployment at more than 8 per cent and anxiety surrounding US economic growth prospects, the recent government jobs push has given renewed vigour to business schools, from Stanford on the west coast to NYU Stern on the east, which have all tried to incorporate entrepreneurship into their syllabuses."

Adorable babies being adorable interlude: A baby laughs as his brother eats Cheerios.


There's little evidence that environmental reviews hold up infrastructure projects, reports Brad Plumer: "To hear some Republicans tell it, pesky environmental rules are a major reason why it takes so long to build highways and bridges. That’s why the GOP’s transportation bill would speed up reviews for various projects. But is this theory true? The evidence, it turns out, is hard to come by. The Obama administration, for its part, has taken a different approach to this issue, selecting 14 specific infrastructure projects that have been especially plagued by delays and pushing those through expedited approval. Many environmental groups and transit advocates prefer this strategy of focusing on the tiny subset of projects that are actually causing problems rather than broad legislative changes. But the bottom line is that this issue needs a lot more study than it’s actually received. The debates over transportation bills since 1988 have all focused on streamlining environmental oversight, yet there’s never been a full analysis of whether tweaks to rules have actually speeded up delays."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.