The upside of the Greek debt crisis

It has been nearly two months since the Greek debt crisis emerged. In typical fashion, Europe's first reaction was one of confusion and disarray. But, in a familiar pattern, Europe now appears to be cobbling together solutions , and there are even signs that this crisis may be pushing the European Union to fine tune both its vision and its institutions. While the amount of the recently announced Greek bailout is relatively small – far less than that for AIG or Citigroup – Greece's situation has acted as a wakeup call to the rest of Europe. That, in turn, has prompted reform proposals in a number of neglected areas which, if passed, will lead not only to a stabilisation of the eurozone but also sensible financial re-regulation and more transparency. The Greek bailout plan is a crucial component of these reform efforts. Unlike the US, where the federal government can play the role of financial backstop that can bail out a troubled state, the eurozone has lacked any such mechanism. The bailout plan marks an unprecedented step, the beginning of what may become a European monetary fund. The bailout plan is not perfect; it's as ambitious as Germany will allow it to be, which means it is cautious. And it is making austerity demands on Greece that will result in some hardships for the population. But in a country in which many are able to retire at the age of 50 or 55, this was expected; Greece has been living beyond its means, and the bill is due. But the Greek crisis has been a warning that other European countries need to address their own shortcomings. That's why it's important that this wake-up call has spurred other reform proposals. A lack of transparency allowed Greece to work with staff at Goldman Sachs to submit falsified finance reports and hide its massive deficit . Paradoxically, in 2005 there was an effort by the European commission to equip the EU's statistics agency, Eurostat, with the right to audit figures submitted by member states. That recommendation was rebuffed because finance ministers did not want anyone looking over their shoulders. Now that proposal has been resubmitted to member states, and is expected to pass. Another reform gaining momentum is for financial re-regulation. Europe finally is moving forward with a crackdown on hedge funds, derivatives, and credit default swaps. Europe first proposed such regulations a year ago during the G20 meeting, but US treasury secretary Timothy Geithner hedged. Now Europe isn't waiting: Greece has pushed it to its limit. Relinquishing a degree of financial sovereignty would never have occurred had not the Greek crisis arisen. In short, rather than meaning the end of the euro or the EU, as some doom and gloomers have predicted, the crisis may be having the opposite effect. Even with Portugal's economy (smaller than Greece's) possibly added to the mix, this crisis has been manageable. It is important to remember that in the post-second world war era, Europe has always evolved and adapted – and actually grown more unified – in response to a crisis. "Old Europe", in the form of the European Union, is comparatively young. Its current configuration of 27 nations and 500 million people dates only from 2004. It took the US about 90 years from the formation of its first government in 1790 to congeal from a collection of regions into a nation and resolve long-standing contradictions. The EU is a work in progress as each crisis exposes its shortcomings, prompting reactions and proposed solutions that allow this important project to continue moving forward.