The eurozone is in turmoil, and it could spread. Measures to restore stability and avoid a contagion triggered by the Greek drama are not succeeding. The euro exchange rate is bearing the brunt. At the root of it all there is a question of simple economics which predicted what the markets fear is going to happen. One might call it the IMF Solution.

To provide assistance to Greece so that it does not default on its public debt as it came up for repayment or renewal, its eurozone partners and the IMF demanded that the country starts cutting its massive public deficit. The Greek government had no alternative but to say yes and is putting in force fierce measures to reduce public spending and raise taxes.

The cuts in spending will not only create further social disorder, as they hit those in the public sector who depend on a wage for their survival by lowering their standard of living. Nor will it simply hit business sectors affected by the rise in taxes. They will, directly and through the contraction effect, simultaneously reduce domestic consumption and discourage real investment. That will affect growth, probably putting Greece on a fresh negative path. It might very well have been pushed on a path towards a slump.

Should that happen, current fears that the Greeks will not be able to repay the massive but possibly inadequate loans to be made to it by the rest of the eurozone and the IMF could become a reality. It might even become the case that, before the full loans and huge standby guarantee packets are drawn the lenders and guarantors might rethink their position.

So, is everybody mad? Are Germany and the rest of those who are advancing loans to Greece out of their mind, putting people's money at severe risk given the afore indicated economic realities? Not at all. There are risks, and greater risks. The Greek contagion, its effect on other weak countries, like Portugal - say Greece's size, and Spain, a much bigger economy - and on the euro could bring the whole house crashing down.

There is also more method in the apparent madness. Greece should, through its austerity measures, become more competitive. The whole idea of the so-called IMF Solution is for Greece and countries in similar circumstances to export themselves out of deficits and recessions or slumps.

Aside from the fact that it hits those who can least carry it, the solution assumes that a country lumped with it has the capacity and the competitiveness-induced capability of going down the net export road. The trouble is that Greece does not have the required capability.

Portugal might be in a somewhat better position, but it is still not very strong. Spain is a more dynamic exporter, but also very prone to social eruption under the policy of burdening wage earners and pensioners. The formula, to have any chance of success, also requires the stronger parts of the single market to be more receptive to receive imports.

In a nutshell that shifts the burden upon Germany and France to take expansionary measures. Neither seems to be in a rush to do so. The weakening of the euro makes the exports of the whole eurozone more competitive. But it is likely that it will be Germany, the perpetual net exporter, who will benefit most from that currency depreciation.

There is another danger which goes beyond the state of the eurozone. The United Kingdom too is currently running a huge fiscal deficit. Former Prime Minister Gordon Brown was chary of starting to implement huge cuts in public spending this year. Aside from the impact on lower income groups and the quality of its public provision, like the health services and education, lower public spending could lead the economy to contract.

David Cameron's coalition government is going to risk it, with the backing of the Bank of England, mostly because the UK is another massive exporter. With slack existing in the economy and with sterling also weakening relative to the US dollar - though strengthening against the euro - it can move to an export-led growth offsetting of the cuts in public expenditure. Whether it will do so, however, remains to be seen.

At the moment the eurozone seems to be in most danger of imploding. There is little Malta can do to influence the situation. What we can do internally is to ensure we take advantage of the increase in competitiveness in non-euro markets brought about by the decline in the euro's exchange values. In parallel the drive to attract foreign investment to help us promote export-led growth has to continue.

The political debate tends to divert attention from this basic fact. It shouldn't. Instead it ought to highlight the dire need to do things properly, in contrast to the power station extension case, so that human and financial resources are used pertinently, and do not become fresh avoidable impediments to growth.

The external sector gives us more than enough problems as it is.