With the Greek debt situation still in flux, it’s worth looking at the real problem in Europe, which of course has nothing to do with the special problem of Greek debt. It’s a growth problem.

There is a palpable sense of hope at the annual Davos World Economic Forum that the euro zone is edging away from the brink of catastrophe but business leaders say Europe’s woes are still holding back a global recovery.

A growth strategy is the missing ingredient in the policy cocktail that euro zone leaders are mixing to save the currency bloc from break-up. Without economic recovery, re-election will be tough for presidents in Europe and beyond this year.

Even if you agree that Greece is largely on an island – and now everybody, including Angela Merkel, admits that they will not be able to avoid default – but even if you think that the contagion from their default can be contained, the only economic strategy being practiced in the Eurozone is one of austerity. And that’s leading to predictable ends. A case in point: Britain’s double-dip recession, amid an austerity regime.

The United Kingdom’s fourth-quarter gross domestic product shrunk 0.2% quarter on quarter, pinched by weakness in the production and construction sectors, according to data released by the Office for National Statistics on Wednesday. Analysts were looking for a drop of 0.1%. Construction output fell 0.5%, compared with an increase of 0.3% in the prior quarter. Distribution, hotels and restaurants increased by 0.7%. Business services and finances rose 2.1%, outpaced by a 2.5% increase in the government and other services sector.

Somehow David Cameron still blamed the deficit for this, so the policy making isn’t getting any better.

Atrios gets this exactly right:

Everybody has been getting it backwards.

1) Cut spending

2) ??

3) Growth

When the reality is:

1) Increase spending

2) Growth

3) pay down debt

The come-to-Jesus moment on Greece, where Merkel and others admit defeat on avoiding default, only comes after the country’s citizens have been impoverished by the policies aimed at “saving” it. And now, when default cannot be averted, the EU policy making elites decide that Greece wasn’t all that important anyway! Based on how you treated its citizens, it sure looks like you believe that.