It seems like 2008 all over again. True, the cast of characters and the scenery have changed. Instead of an imploding mortgage market, an evaporating Lehman Brothers and huge bank bailouts, we have an imploding Italy, an evaporating Greek economy and huge country bailouts.Act I, Scene 2008 was played against the backdrop of empty homes, an end to eight years of Republican rule and a panicked Wall Street; Act II, Scene 2011 is being performed in front of the Greek parliament building, the collapse of multiple European governments, and Occupy Wall Street.But the fundamental problems of indebtedness, dysfunctional financial markets and more bailouts are distressingly similar to those of three years ago.Another constant is that Israel is in nearly as good a position to sit out the financial crisis in 2011 as it was in 2008. Our economy has been growing smartly through the intervening years while the US and Europe have struggled to climb out of recession. Israel started running a current account deficit this year for the first time since 2003, but it has approached nothing like red-light levels. Most importantly, we have less debt relative to the size of our economy than any of the big Western economies do.One reason is that last time around, the Israeli banking system didn’t need to be bailed out, nor did the economy need costly stimulus measures to keep it afloat.While developed economies were taking on more liabilities, Israel was one of the few countries that actually reduced its relative debt load over the past three years.Nevertheless, there is one critical difference between 2011 and 2008: Today, the very policies that enabled our economy to weather this period are under attack from the protest movement that started with cottage cheese and morphed into a generalized critique of the country’s socioeconomic policy direction.The protesters correctly identified the ailments – growing inequality and persistently high rates of poverty, the high cost of living, and a tax system that favors capital over labor. But the diagnosis was faulty, and the medicine Daphni Leef and other protest leaders are prescribing – go after the tycoons, increase government spending and entitlements and increase the role of government in the economy – could hurt the patient more.IRONICALLY, GIVEN the situation developing in Europe as the tent protests were gaining momentum, the inspiration for the social justice protests has been the socalled European Model. Given the situation developing in Greece, Italy and now France, it is a bit ironic that the inspiration for the social justice protests has been the so-called European Model of social-economic policy. But the tent protesters are looking longingly at an era that seems to be rapidly fading away, of generous social, unemployment and pension benefits and free tuition through university. Economic pressures have whittled away at the model for years: Government-owned enterprises were privatized, labor unions declawed, social benefits pared back and retirement ages raised. Europeans still enjoy more government largesse than Israelis, but their unemployment rates are higher.So far, the financial crisis of 2011 has not extinguished all the lights across Europe.Germany and the North are still solvent and economically competitive. Some of the ways they have been able to ensure that is through high rates of productivity growth and because a large portion of the population is in the active workforce. And if you’re going to run a budget deficit year in and year out, you have a pretty rapid rate of economic expansion to grow your way out of ever-expanding debt.Israel has recorded impressive rates of economic growth in recent years, but by other measures we look more like a Mediterranean country than one of the more admirable economies of Europe’s North. Germany has a GDP per capita of about $40,000, the Netherlands $47,000 and Switzerland more than $67,000. At $29,000, Israel’s is more in line with Europe’s poorer south. Greece’s is about $27,000, Spain’s is just over $30,000 and Italy’s is $34,000. Although it is getting better, we also have a relatively low 60.2 percent of the working-age population actually holding jobs. That’s not much better than Greece (59%), Italy (56.9%) or Portugal (59.4%). By comparison, 71.2% of all working-age Germans are employed, as are 72.7% of all Swedes and 74.7% of those in the Netherlands.The under-working, overspending South of Europe is already in deep trouble. The North will have trouble avoiding the same fate. That’s because there is a great leveling out of the world economy right now, which means that not only are China, India and a host of other countries growing richer, they are doing so at the expense of the wealthy West.AS RECENTLY as two decades ago, the West had a near-monopoly on the technologies and management systems of a modern, industrialized economy. That monopoly enriched it and enabled it to spread wealth around through higher wages and an ever-increasing array of social benefits. Now if China can’t make a car as good as Germany’s, it can certainly make one as good as Italy’s, and much more cheaply. And if Indians aren’t producing software on the same sophistication level as Israel, they can certainly write a lot more code and are moving up the technology ladder.The bottom line is, an Italian auto worker or a Spanish machinist can’t compete with his Chinese or Vietnamese counterparts when his wages and social benefits, as well as the government’s take in taxes, are many times higher. Eventually those Asian workers will see their compensation improve, but before that happens, the Europeans and Americans are seeing theirs decline or disappear.Economically speaking, these are dangerous times. Israel does have serious social inequalities, and the Trajtenberg Committee did a good job of trying to square the need to address them with the fiscal and other constraints we face. The medicine Israel should be taking is pushing more people into the workforce, attacking the most inefficient sectors of the economy (starting with the ports and the Electric Corporation) and overhauling the educational system. If we do, we might just get through yet another global financial crisis.