Financial Times
Editorial
June 12, 2011
As the make-it-up-as-you-go-along plan for Greece navigates ever narrower straits between the politically intolerable and the economically suicidal, policymakers resort to every trick in the book.
Berlin insists on sacrifice from private bondholders as a condition for funding a second rescue loan. It is not hard to see why. Germany contributes to the loans according to its share of the eurozone economy, not its financial system’s exposure to Greece. German banks and insurers may have more at risk in Greece than do those of most other countries, but they are paragons of prudence compared with the French. Berlin’s helping hand for Athens covertly bails out its own banks but also lightens a burden Paris might otherwise bear.
The private sector participation Germany wants would correct this imbalance somewhat. The problem is how to impose burden-sharing without triggering exactly the consequences the entire rescue aims to contain. Tinkering with Athens’ liabilities could hit balance sheets at the banks and insurers to which they are owed. The greatest danger is a collapse of the Greek banking system, which would dramatically upset the balance of costs and benefits of Greece staying in the euro.
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