The latest news from Greece suggests that a new coalition government involving the Greek socialist party, Pasok, the principal opposition party New Democracy led by Antonis Samoras, and two conservative minor parties is to replace the Government of George Papandreou. (One of these parties , the LAOS party is apparently led by an ultra right wing politician who has been accused of anti-semitism in the past see the article in the German paper BILD by Paul Ronzheimer on this. His views and possible inclusion in the new Government have aroused concern in Germany. )
This cross party alliance will implement the austerity and privatization program demanded of Greece by the European union and also receive the bail-out monies that have been promised. The government is likely to be short lived with new elections expected in the spring. It is not clear who the new Prime Minister will be but the Athens press is rumoring that it is likely to be a technocrat, Lucas Papademos a former Vice president of the ECB and former head of the Bank of Greece. So Mr. Papandreou is the principal victim of the European dictat. We shall see if this ends the crisis. Because of the excessive nature of the austerity being demanded in exchange for help I remain a sceptic.
Europe has forgotten or deliberately suppressed the original Keynes plan to rescue countries that suffered exchange deficits. The idea was that surplus countries who had built up their surpluses at the expense of deficit countries in the trade exchange would be obliged to help out the debtor countries by providing low interest loans out of a common currency fund, bancor,, not imposing draconian austerity which Keynes correctly argued would only worsen the situation and diminish trade. This wise counsel has been turned upside down in Greece and the consequences are quite clear.