Sounds like a re-run of the seventies. Urghh!

The European welfare state institutions are under attack from the neo-liberals The latest assault in the US informs us that pensions and other social benefits are no longer “affordable” and that the coddled European public must wake up and face reality.

Stalled economic growth and unwise bailout for financial institutions is the core problem for most western governments. Europe, like the US, needs to deal with this. But those problems have little or nothing to do with “unaffordable” social welfare programs.

In the US, for instance, the neo-liberals say that social security must be cut when the budget is in surplus (eg., during the Clinton administration) and when the budget is in deficit (during the Obama administration). Cutting Social Security is the Republican party's silver policy bullet.

The deficit hawks are singing pretty loudly these days. Europe's welfare system is in their firing line--they cannot afford it with their budget problems --- and they are gunning to cut big chunks out of social security in the US. Cutting Social Security benefits and diverting as much money as possible into Wall Street’s coffers is the plan.

Mathew Yglesias in Safe European Currency in American Prospect says that a Greek default:

Greek default would call the European monetary system into question. Greece largely owes its money to French and German banks, some of which might be pushed into insolvency that would be met by government bailouts. For France and Germany, a bailout of some form was inevitable: It was really just a choice between giving the money to the Greek government so that it could give it to banks, or giving it straight to their own banks. The complication here is that a Greek default would cause massive runs on Greek banks. The conventional wisdom has long been that no country can leave the Euro without sparking massive bank runs. But if you’re already experiencing massive bank runs, then why not leave the Euro and let devaluation boost your exports to cushion the ongoing terrible economic situation?

He adds that the crisis is not primarily about short-term Greek fiscal policy. The larger issue is that a big set of European countries, including not just Greece but also Portugal, Ireland, and even Spain and Italy, are going to have trouble paying their debts without economic growth.

Spain, Ireland, Portugal, and Italy can't count on cheap debt to fuel their economies. And they can't devalue to grow. But without growth, it will be extremely hard to pay what they owe over the long run no matter how responsibly they budget.

an account of what is happening in Ireland during the economic crisis.Yhe budget cut

measures are equivalent to the British government slashing its budget not by the £6.25bn planned by George Osborne in 2010, but by an incomprehensibly gigantic £150bn.Yet despite the cuts, dubbed "masochistic" by the Financial Times, Ireland's debt is still growing, thanks to the desperate bailing out of its banks. Irish critics fear this economic death-spiral could lead to a decade of grinding austerity, a generation lost to unemployment and, worse, the return of a spectre that has haunted Ireland for two centuries: mass emigration.

It's grim austerity as all the money has gone to bail out the banks.

In the Guardian Étienne Balibar says that clearly, this is only the beginning of the crisis. The euro is the weak link in the chain, and so is Europe itself. There can be little doubt that catastrophic consequences are coming. He adds:

We cannot, accordingly, but ask the question: is this the beginning of the end for the EU, a construction that started 50 years ago on the basis of an age-old utopia, but now proves unable to fulfil its promises? The answer, unfortunately, is yes: sooner or later, this will be inevitable, and possibly not without some violent turmoil. Unless it finds the capacity to start again on radically new bases, Europe is a dead political project.

He asks what is going to happen when the crisis enters its next phases?

Adrian Hamilton in This is a crisis of politics not markets in The Independent says:

What we are witnessing now is the second phase of the Credit Crunch. The first was the seizing up of interbank flows. It was essentially a financial crisis demanding a financial response. The second phase is the unwinding of debt, which is as much a political issue demanding political decisions about expenditure, tax and investment.

Politicians who had, for very good reason, wanted to say that the whole crisis was down to the banks now have to face up to all the underlying problems of excessive debt, unbalanced development, the overhang of pension burdens and over-reliance on property and development. The particular pattern may vary from country to country but the overall pressure to do something about it is true for virtually all. Even the Germans have had to announce drastic expenditure cuts.

He adds that the trouble with the trillion dollar rescue package put together by the Eurozone governments was that it once again bailed out the commercial banks with taxpayer's money, this time at the cost to the public of dramatic and early expenditure cuts.