The outcome of the Greek election brought a few moments of relief to financial markets, but tranquility was short-lived. Although a possible immediate exit of Greece from the Eurozone was averted, Germany’s willingness to ease terms for financial assistance and Greece’s ability to follow through with any program remain in question.
Fears over Spain have already mounted and anxiety over Italy looms large in the background. Europe must find a way to recapitalize the banks, create a large deposit insurance fund, enforce fiscal discipline, and reform structurally weak economies.
In the United States, Congress must find a way to prevent a large rise in taxes and a sharp cut in spending from pummeling the U.S. into recession early next year. Difficult political decisions must be made on both sides of the Atlantic.