François Hollande, the Socialist Party candidate for the 2012 French presidential election, attends an April 19 campaign rally near Bordeaux, France. © Stephane Mahe, Reuters

French presidential candidate François Hollande

So what's Plan B, Europe?

Austerity, the eurozone's Plan A for ending its debt crisis, looks to be falling apart. And my fear is that there is no Plan B.

How scary and potentially dangerous can life be without a Plan B?

During the last family vacation I ever took with my parents, I remember calling out from the back seat, "Hey, the gas is on empty, and that signs says 'Next exit last gas for 46 miles.'" My dad, who never wanted to stop once he got rolling, was driving, and my mom, who loved to plan, was riding shotgun. Needless to say, we passed that exit without slowing. I watched, fascinated in the way that a mouse is fascinated by a rattlesnake, as the needle sank further and further below "E."

My mom, I'm sure, was fuming. And my dad? Did he have a Plan B?

This was 1965, and we were on an almost-empty stretch of newly completed interstate in Montana. What could we have done except coast to a stop and wait for a state trooper to come along -- eventually? I can still feel my relief as we finally rolled in to a gas station. I don't think my father was joking when he said, "I've never seen this car take so much gas." I know my mother didn't find it funny. (And, as I said, it was the last family vacation we ever took.)

Image: Jim Jubak

Jim Jubak

My dad lucked out. His lack of a Plan B didn't leave us stranded on the side of a deserted highway. The eurozone countries don't look like they're going to be that lucky. If they want to avoid another -- and quite possibly more damaging -- round in the eurozone debt crisis, they need a Plan B.

And maybe, just maybe, there's a glimmer of a Plan B emerging from the unlikeliest of sources: French Socialist and anti-European-fiscal-discipline-pact presidential candidate François Hollande.

A pact that can't stay intact

On Jan. 30, 25 of the 27 European Union countries agreed to sign on to a German-sponsored pact designed to ensure budget discipline among Europe's economies. It was a moment of triumph for German Chancellor Angela Merkel, who had pushed to make a promise of budget discipline binding. It was also a win for eurozone politicians who had argued that a tighter fiscal union with stricter limits on the budgets of member nations was the way to solve the eurozone debt crisis.

"It is the first step toward a fiscal union. It will certainly strengthen confidence in the euro area," European Central Bank President Mario Draghi said then.

The logic was simple -- countries would demonstrate discipline by passing austerity budgets with big cuts to spending and significant increases in taxes, and that would restore financial market confidence in Ireland, Portugal, Greece, Spain, Italy and France. That would in turn enable these countries to borrow in the financial markets at reasonable interest rates.

Growth would then resume -- aided by economic reforms passed along with the austerity measures -- and the debt crisis would be over.

But now, about six weeks after European leaders signed the treaty embodying that "solution," it is in tatters. Spain has already tried to unilaterally reset its budget deficit targets for 2012. A coalition government in the Netherlands resigned when a coalition member refused to support a budget designed to get the country's 2013 budget deficit down to the 3% European Union target. On April 25, Ireland's union movement said it couldn't support the treaty in the upcoming referendum. Opinion polls show 30% of Irish voters in favor, with 23% against and the rest undecided.

An Irish no vote, like that of 2008, when Ireland initially rejected the Lisbon treaty amending the basis treaties that are the foundation of the European Union, wouldn't kill the budget-responsibility pact. But it would create a financial market crisis, since the pact says that any country that rejects the pact is ineligible for funding from the European Financial Stability Facility, which currently underwrites Ireland's rescue package.

But the biggest blow to Plan A has come from France. Challenger Hollande has run on renegotiating the pact, and incumbent Nicolas Sarkozy has moved closer and closer to that position in an effort to catch up before a second round of voting, on May 6, decides who will be the next president of France. To stand any chance of winning, Sarkozy must move closer to the anti-eurozone stance of the National Front's Marine Le Pen, whose extreme right-wing party came in a strong third, with 18% of the vote (to Sarkozy's 27% and Hollande's 28.6%).

Austerity leads to more austerity

Plan A has run into two big problems.

One is economic.

The pain of austerity budgets has produced shrinking economies and more pain, which combine to create a need for even more austerity. To use Greece as an example of how this has worked: On April 24, the Bank of Greece forecast that the Greek economy will shrink by about 5% in 2012, for a fifth consecutive year of contraction. That's worse than the 4.5% drop for 2012 that the bank had previously projected. Unemployment, the bank predicted, will rise to 19% in 2012 from 17.7% in 2011. Some 250,000 of the 1 million companies in Greece in 2009 have closed since then.

Some of that contraction is due to the budget cuts and tax increases introduced by the Greek government as it attempts to cut its deficit to meet the targets set by the International Monetary Fund, the European Commission and the European Central Bank.

You can see that process at work if you compare the most recent figures and projections on the Greek economy and budget deficit to where the country thought it stood in November 2011, when the coalition government presented the 2012 budget plan to parliament. The government then thought the cuts and taxes in that budget would reduce the Greek budget deficit to 5.4% in 2012. At that point, the government was projecting that the Greek economy would contract by just 2.8% in 2012, with an unemployment rate of 17%. If everything went according to plan, Finance Minister Evangelos Venizelos told a press briefing that November, the government would not need to introduce further austerity measures.

It didn't go according to plan. As the economy shrank, Greece had to find an additional $4.4 billion in budget cuts in February to keep rescue funds flowing. And it looks as if whichever party wins the May 6 national elections will have to come up with an additional $14.5 billion (about 5% of Greece's gross domestic product) in budget cuts for 2013-2014, according to the International Monetary Fund. Those cuts could shrink the economy yet again.

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