Wall Street Journal
May 10, 2011
Jean-Claude Trichet should know when to fold 'em.
A year ago Tuesday, the European Central Bank began buying Greek government debt in a bid to end the crisis gripping euro-bond markets. The move came four days after Mr. Trichet, head of the ECB, said such an option hadn't been discussed.
Today, the Greek crisis is again raging, with markets expecting the country may have to restructure its debt. When asked about that last week, Mr. Trichet was resolute: "It is not on the cards," he said.
Coming weeks will show if he was bluffing. Unfortunately, there is little chance Mr. Trichet has an ace up his sleeve. Greece's problem, as evidenced by Standard & Poor's downgrade of the country Monday, is that its numbers don't add up. To get debt down to sustainable levels, Greece needs far-higher economic growth to lower its debt relative to its gross domestic product.
That isn't happening. Greece's economy likely will contract by 3% this year, the International Monetary Fund says. As a result, the country's debt ratio keeps climbing, despite—indeed, partly because of—draconian austerity measures.
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