On Feb. 9, European Central Bank President Mario Draghi issued a statement saying a deal was finally done between Greece and its public and private creditors. That statement was the culmination of more than a week of tense brinksmanship.
But he spoke too soon. Greek negotiators did agree to large cuts, and two of the three main Greek parties signed off on the deal. But the announcement sent 100,000 rioters into the streets of Athens, some outside the Parliament building. And Germany's Angela Merkel declared that Greece had no flexibility: Pass the deal as is, or risk bankruptcy.
So, finally, on Feb. 13, that's what Greece did. Austerity measures earned Greece a bailout of 130 billion euros from the European Central Bank and other public sources. The deal will also cut about 100 billion euros in privately held debt.
But this problem is far from solved. The cuts and bailouts won't come close to erasing Greece's debt-which is far larger than its annual gross domestic product. Political realities add to the confusion: Hours after the austerity measures passed, Greek officials called for general elections in April.
If the riots are a sign of labor and leftist party strength, elections could reverse the austerity measures-and almost everyone predicts chaos if that happens. Till then, Moody's downgraded the credit rating of six European nations the very day the Greek deal was signed-not exactly a vote of confidence in Europe's financial future.
Despite Europe's problems, the U.S. economy keeps humming. U.S. stock markets are near a two-year high, and first-time claims for unemployment benefits are near a four-year low. So is the United States just whistling past the graveyard? Possibly. The European trouble is real. U.S. GDP growth would be at least a half-percent higher this year if Europe were healthy.
Even so, things are getting better here. Among the positive indicators: Fidelity Investments, the nation's largest 401(k) administrator, announced in February that workers put more money in 401(k) plans in 2011, mainly because companies restored matches suspended during the recession. Also, after a dry 2011, initial public offerings (IPOs) are back. Facebook filed for an IPO in early February. The newly renovated Empire State Building announced Feb. 13 it would try to raise $1 billion in the public markets.
Perhaps most significant: A huge settlement, $25 billion, between the big banks and state and federal governments turned a page in the housing crisis saga. This settlement won't completely solve the crisis, but it signals the beginning of the end by bringing some cash and a lot of clarity to what had been the U.S. economy's biggest problem. -Warren Cole Smith
Those who advocate a return to some version of the gold standard as a backstop for U.S. currency should be careful what they ask for. In such a world, one of the unintended consequences could be a dramatic rise in the power and wealth of India. In India, gold is more than money. It is a cultural icon, a symbol of prosperity, purity, and good fortune in the Hindu-dominated country. As the Indian economy has grown-the size of its middle class now exceeds the entire population of the United States-hundreds of millions of Indians have bought gold, mostly in the form of jewelry. India now dominates the worldwide gold market, with a market share of more than 30 percent. The U.S. share is less than 10 percent. The gold scales are likely to tip even more in India's direction, no matter which direction the price goes. If gold goes up, wealthy Indians will buy more and ride the trend. But if gold goes down, millions of poor Indians currently priced out of the market will see the drop as an opportunity to get in. One analyst said that if the price of gold falls or even stays where it is, Indian demand for gold could grow by 15 percent in 2012. -Warren Cole Smith