Greece's solution: The EU devises a plan to head off further damage

The European Union's 16 euro currency zone countries worked out an agreement last Thursday to attempt to deal with Greece's financial implosion. It wasn't a total bailout, but it should help.

Greece will continue to try to borrow on commercial markets, based on its economic reform plan, the capital necessary to meet its debt service and repayment obligations and whatever new borrowing it requires to implement the plan. The EU's euro zone members will, in effect, stand behind Greece in this borrowing as a lender of last resort.

Greece's problem was that the interest rates it was going to have to pay, absent the EU members' guarantees, would have been so high as to undermine the impact of the economies it would realize through its new reforms, perhaps to the point of uselessness. The EU's approach, led by Germany and France, was a brand of "tough love." The Greeks clearly deserved it on the basis of the profligate spending that put them in the mess they are in, and their submission to the EU of false data about their economy.

In an effort to assure future truth in lending and borrowing, the EU is also requiring Greece to take its case to the International Monetary Fund. The union was reluctant to do so because, first, the IMF has a reputation for prescribing bitter medicine to supplicants, and, second, because, in general, the euro zone is reluctant to let the IMF pry into the business of its members. Europeans, like Wall Street, are clubby about what they consider to be their internal banking affairs.

There are still problems. The government of Greek Prime Minister George Papandreou is having a hard time selling the new straitened economic regime to the Greek people, particularly the unions. Some of the EU governments, notably Germany and France, will also have difficulty selling any bailout of Greece to their people.

For Americans, the economic salvation of Greece, and, with it, the euro, is to their advantage. In general, the United States does not like to see the EU, a strong ally, sag. Second, a stronger euro makes for a weaker dollar which, although painful personally to travelling Americans, improves the competitiveness of U.S. exports.