by Simon Nixon
Wall Street Journal
March 15, 2011
It doesn't qualify as a grand bargain, but the latest European efforts to draw a line under the sovereign-debt crisis went further than the market had expected.
Perhaps spurred by last week's alarming rise in peripheral government-bond yields, euro-zone leaders agreed over the weekend to expand the size of the euro area's bailout facilities to €440 billion ($611.7 billion) from €260 billion now. They also lowered the interest rate by one percentage point, extended the maturity of emergency loans to Greece and allowed the new European stability mechanism to buy bonds in primary markets.
While welcome, the measures are unlikely to prove a definitive solution. They address only near-term liquidity concerns rather than trickier issues over solvency. There remains no credible plan for the recapitalization of the banking system or a clear mechanism to handle possible future sovereign defaults. Nothing in this plan is likely to change the market's view that Greece's and Ireland's debt is unsustainable or that Portugal will also soon need a bailout.
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