Leaders of the European Union failed to reach a unanimousagreement last Friday on a new seven-year, $1.3 trillion budget fortheir collective government. Adoption of a new budget facesuncompromising hurdles. It must have unanimous support, renderingadoption impossible in the US context. Even across the pond,arriving at consensus is no easy task. The budget debate hasreopened deep divisions within the EU, including skepticism aboutthe European experiment from the highest levels of the UKgovernment.

I am just returned from Greece, the center of gravity forefforts to secure Europe’s future. The protests in the streetsoutside the Grand Bretagne hotel, which sits just a few hundredfeet from the Greek parliament, underscore a popular readiness towalk away from the economic and political coalition. That is addingto Greece’s pain. As in Spain and Portugal, a brain drain of themost mobile and productive market participants is an emergingrisk.

Euro leaders announced a new deal yesterday that may avertGreece’s moment of truth, or at least delay it. The adjustedbailout terms include several major concessions by their sovereigncounterparties, such as a ten-year deferral in interest payments.The German government is right to be concerned about moral hazard.Developments in Greece have implications for how programs may bestructured in Cyprus, where crisis is brewing, and in Spain, thefourth-largest economy in the Zone.