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 great "austerity vs. growth" debate.
When critics condemn austerity, they usually have in mind the combination of tax hikes, spending cuts and structural reforms that Germany and other surplus-earning countries in the northern half of the continent 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, these countries would still have to shed wasteful government programs, improve tax compliance and 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 continues to slash budget deficits and restrain wages. If this keeps up, the debtors will never be able to boost exports, which is their least painful path to growth and solvency.
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. 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.
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.