EUROPE'S debt crisis is a year old and no closer to being solved than it was last summer. A growing number of commentators have joined The Economist in banging on about how the debt of insolvent peripheral countries needs to be restructured. But Matt Yglesias wonders if "needs" isn't too strong a word:

I'm not intimately familiar with the details of Greek public finance, but it does occur to me that sage words I keep reading in the American press about how Europe's leaders can't just keep kicking the can down the road and need to deal with Greece's basic insolvency strike me as unwarranted. In general, the capacity of large wealthy societies to allow festering problems to go un-addressed seems perennially underrated. I'll be thirty next week and for as long as I can remember people have been talking about how the United States needs to address entitlement spending and trade imbalances. And as best I can tell, we do need to address those things. Presumably at some point something will happen. But in practice we've managed a great deal of can-kicking, seem to have more can-kicking in us, and actually the public and the political elite alike are quite averse to the kind of steps that would address these issues.

It is absolutely true that Europe could continue on without restructuring any debt. Greece is effectively shut out of markets and so long as it's plainly insolvent it will continue to be. But if European institutions are willing to give Greece the money it needs to cover its borrowing, then it doesn't matter what markets think.

The issue is that most people think Europe will not continue to fund Greece (and Ireland and Portugal) indefinitely. It is becoming harder and harder for Germany's government to convince its parliament that the bail-outs should continue. Germans aren't the only ones growing weary of support for struggling peripheral countries. And keep in mind that we're not even halfway through 2011. It seems unlikely that Greece could borrow in markets next year, and even 2013 is questionable. It's difficult, though not impossible, to imagine that European generosity will extend that long. Remember, also, that European countries will be having elections over this timeframe, in which anti-bail-out parties are likely to do extremely well.

Meanwhile, Germany isn't the only party worth worrying about. Greece, too, may balk at the terms it's offered. Here's The Economist's latest analysis of the situation:

Investors have become even more loth to provide long-term funding: ten-year bond yields now exceed 15%, compared with a peak of 12.3% a year ago. This reflects, in part, an appreciation that Greece's fiscal woes are even graver than they first appeared. The starting-point in 2009 for both debt and the deficit turned out to be worse than realised; tax revenues have proved disappointing as austerity measures have undermined growth. As a result Greek government debt at the end of last year was close to 145% of GDP and the deficit for 2010 was a colossal 10.5% of GDP, well above the original target of 8.1%. Even the most cohesive and determined government would be hard-pressed to get out of this kind of fiscal mess. Instead, the Socialist government of George Papandreou is split over the prospect of yet more painful reforms. There is talk of installing EU officials at Greek ministries where the most foot-dragging has occurred. The hardest task will be pushing through a €50 billion privatisation programme which is openly opposed by Mr Papandreou's closest cabinet allies, Tina Birbili, the environment and energy minister, and Louka Katseli, the labour minister.

Europe wants even more Greek austerity. It wants its officials running Greek ministries, and it wants massive and rapid structural change in the Greek economy. Are Greeks really prepared to accept all of this? Meanwhile, Germany is already pushing for a debt reprofiling for Greece. This would allow current bail-out funds to cover Greek borrowing through 2012, but it wouldn't reduce Greece's overall debt burden. The other big stakeholder involved, the European Central Bank, is opposed even to that.

And while Europe bickers, the Greeks are suffering. Its economy contracted 2% in 2009 and 4.5% in 2010. Over the year to March, the Greek economy shrank by 4.8% while the German economy grew by 4.8%. The IMF forecasts a Greek contraction of 3% this year, turning to expansion, at long last, of about 1% in 2012. But obviously, more fiscal tightening (and more potential monetary tightening from the ECB) could endanger even this unfortunate outlook.

So it is entirely possible that things will continue on as they have, with Europe grudgingly providing funding for Greece in exchange for ever more onerous rounds of austerity. I don't think it's likely, however. There are too many known factors threatening the status quo, and who's to say what unknown factors may hit the euro-zone economy between now and the point at which markets are finally willing to lend to Greece at a rate it can afford.