Wall Street Journal
May 16, 2011
There are three facets to the unfolding drama in euroland: the immediate finances and inevitable defaults; the post-default euro zone; and the political fallout.
The first, and most obvious, is the financial. It is now clear that for all practical purposes Greece is bust. Whether the default takes the form of haircuts—only partial repayments—or of "reprofiling" the debt so that creditors wait longer for their money is irrelevant. The rating agencies say either one is a default. Jean-Claude Trichet, head of the European Central Bank, says default is not in the cards. He must know, then, that Chancellor Angela Merkel is being economical with the truth when she says she will not agree to easing the terms or increasing the amount of the three-year €110 billion ($155 billion) Greek bailout. Her ability to find a way to back off her current position is complicated by the fact that Greece needs more than a minor uplift —€60 billion in addition to its €110 bailout—to get through 2013. She won't find it easy to ask her taxpayers for an even greater sacrifice when Greece is not meeting the targets it agreed when its euro-zone partners bailed it out: tax revenues are falling short, spending is exceeding targets, and the privatization program is far behind schedule. So it's more German money in return for more impossible-to-fulfill promises, or default.
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