The Greek Example

Wall Street Journal
Editorial
June 16, 2011

Seventeen-point-seven per cent. That was yesterday's yield on 10-year Greek bonds, up from 9.3% a year ago. Two-year bonds are closing in on the 30% mark, and the cost of insuring sovereign Greek debt stands at a stunning 18.2%. Prime Minister George Papandreou faces a crucial parliamentary vote to approve a fresh round of austerity measures—the condition for obtaining the next tranche of the EU and IMF bailout—and it would come as no surprise if his Socialist government fell. But that fall would be a footnote in the broader calamity that has overtaken Greece, which in turn could be a footnote to the calamity that awaits unreformed entitlement states everywhere, from Japan to California.

As these columns have argued from the first, this is not a liquidity crisis. The tab for last year's EU-IMF bailout came to €110 billion ($160 billion), and the number now being floated for an additional emergency loan is €45 billion. Yesterday, the European Central Bank's Nout Wellink called for doubling the size of the European bailout fund to €1.5 trillion, or $2.15 trillion, which did nothing to allay market fears but was a reminder of how little the previous bailouts have eased Europe's sundry sovereign-debt crises.

Nor is Greece (or Ireland or Portugal) a crisis of the single currency. Yesterday, French President Nicolas Sarkozy called on other European leaders to set aside differences over the terms of Greece's next bailout, warning that the euro's future depends on it. Mr. Sarkozy is especially keen to stave off German Chancellor Angela Merkel's demand that bondholders take a haircut in any new deal, and no wonder: French bank exposure to Greek debt runs north of some $57 billion, according to the latest figures from the Bank of International Settlements, including a whopping $30.8 billion for Credit Agricole alone.

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