An Italian, a Portuguese and a Greek go into a bar and have a round of drinks. Who pays? The German.

Eurozone recovery necessitates reform

By Dalibor Rohac

Day of fiscal reckoning approaches

The ongoing debt crisis in the eurozone has given rise to a predictable genre of tasteless humor directed at the ailing nations on its periphery. 

A typical example would go like this: An Italian, a Portuguese and a Greek go into a bar and have a round of drinks. Who pays? The German.

• Although it is unfortunate that the crisis fosters ill-advised national stereotypes, such jokes do raise the serious question of why nations in the eurozone's Mediterranean area seem unable to deal with their fiscal problems. 
• At some level, their problems are simple -- they boil down to basic math. Italy, Spain, Portugal and Greece have been living beyond their means for far too long, they have run out of money, and their governments simply need to adjust their spending patterns to economic reality. 
• Their problems are not new or unique -- the world is rife with examples of countries that faced similar, if not greater, economic difficulties, and they were able to overcome the adversity through deep and credible reforms.
• For a recent example, look at Estonia, Latvia and Lithuania. As economist Anders Aslund writes, the Baltic states were hit in 2008 and 2009 by a nearly complete liquidity freeze, which sank their economies by as much as 24 percent. 
• In response, the government followed strict austerity, with a fiscal adjustment of about 9.5 percent of gross domestic product, accompanied by far-reaching structural reforms.
• All three returned to their growth trajectories after only two years of recession, and their economies grew at rates higher than 5 percent last year. In short, "the turnaround, driven largely by manufacturing exports, has been one of the most remarkable and promising stories of the crisis," Mr. Aslund writes.

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