IT MAY ALREADY be too late to prevent Greece from defaulting on its debts and leaving the euro, Europe’s common currency. But there still may be time to prevent Greece’s woes from dragging down the rest of Europe, and the world. For that to happen, though, Europe’s leaders must think clearly about the issues before them, especially the great “austerity vs. growth” debate.

When European and, indeed, U.S. critics condemn austerity, what they usually have in mind is the combination of tax hikes, spending cuts and structural reforms that Germany and other surplus-earning countries in the northern half of the continent, as well as the International Monetary Fund (IMF), are imposing on the debtors in the south, in return for financial support.

In their demand for growth, however, the critics fail to explain how to fund it. Countries such as Spain, Italy and Portugal have lost credibility in global bond markets — and competitiveness in the global market for goods and services. Under any reasonable scenario, even one in which Germany and the IMF relaxed deficit-reduction targets, these countries would still have to shed wasteful government programs, improve tax compliance and, most of all, make their labor markets more flexible.

What deserves more attention is the threat to Europe from austerity in the surplus countries. Despite its super-competitiveness with respect to its neighbors, Germany (and, to a lesser extent, the Netherlands) continues to slash budget deficits and restrain wages. Between 2008 and 2011, Spain cut unit labor costs by 8.5 percent, compared with the rest of Europe. That’s great — until you consider that Germany also cut its labor costs by almost 2 percent, maintaining its wide lead over everyone else. If this keeps up, the debtors will never be able to boost exports, which is their least painful path to growth and solvency.

Only in Germany, perhaps, could irresponsible policy take the form of self-denial. As economist Simon Tilford of the Center for European Reform puts it: “Any attempt to permanently lock-in [German] competitiveness gains will simply perpetuate the crisis.” Germany cannot demand sacrifice from its European partners without also conceding to them a share of the market and enabling increased German demand for imports. By the way, there’s some justice in this, since German banks loaned Spain et al. much of the money they spent on German products during the boom.

Fortunately, there are signs that Berlin is waking up to these facts. The German government recently approved a 6.5 percent pay increase over two years for public-sector workers; Finance Minister Wolfgang Schaeuble also backs higher wages for German private-sector workers in the current round of collective bargaining. Mr. Schaeuble specifically cited the need to “reduce imbalances in Europe.” Germans have even begun to debate the sensitive issue of allowing a modest degree of inflation in their country, which is the natural way to offset deflation in the southern reaches of the euro currency union.

A more import-friendly stance will be resisted in Germany, by the country’s powerful export industries and by inflation-wary consumers. It is hardly a sufficient condition for European recovery. But it is a necessary one. For the good of Europe, the Germans are just going to have to grit their teeth and throw themselves a party.