Guardian
June 17, 2011
One cannot help but feel that the Greek tragedy is nearing some sort of endgame. The streets of Athens are burning as people try to resist yet another round of austerity medicine repeatedly prescribed by the EU/IMF and forced down their throats by the Greek government. Even though there is ample evidence that the current medication simply does not work – instead triggering huge social and economic side effects – policymakers at the IMF, the EU and the ECB are unwilling to rethink their diagnosis and cure.
The eurozone is at breaking point and Greece is trapped. The markets have long acknowledged this, as almost all European banks and even the biggest Greek private bank are radically reducing their exposure to Greek bonds. Somehow engineering an agreement to go on with the current policies and continuing to pour more money into this black hole will not resolve the crisis but make the long-term costs even worse. The Greek sovereign debt crisis will not be resolved this way. So what can we do?
In a quite unusual turn of events I think that the German government is starting to make the right noises. I have argued before that it is simply unacceptable to socialise investment losses whilst keeping profits private. Therefore I think it is absolutely right that the German finance minister Wolfgang Schäuble is pushing for an inclusion of the private sector in resolving the current crisis. Whether this means a voluntary bond swap with longer maturities or some other measure can be debated; but the principle is right. And it is about time to seriously talk about this given that the private sector is already getting out of Greek bonds and the ECB is more and more exposed – which explains its resistance to the German proposals.
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