Paying Greek debt

Financial Times
Editorial
June 14, 2011

“Something will turn up.” Charles Dickens, the Victorian novelist, made the expression famous 160 years ago when he put it in the mouth of Wilkins Micawber, the perennial optimist of David Copperfield. At times it has seemed as if Micawberism has defined the response of European policymakers to the Greek debt emergency. But not much has turned up since May 2010, when the European Union and International Monetary Fund hastily arranged a three-year, €110bn loan for Greece.

The original hope was that Greece would be strong enough to return to the capital markets next year, but this has proved wide of the mark. Another costly EU-IMF rescue of the eurozone’s weakest link is therefore on its way. Whether this will help Greece to restore robust economic growth, achieve a primary budget surplus, issue bonds at affordable prices and avoid an appeal for debt relief is anyone’s guess. But European governments clearly think it is worth a try.

Fearing the impact of a sovereign default on their banks, not to mention European monetary union, Europe’s leaders chose last year to diagnose Greece’s condition as a liquidity problem rather than a case of incurable insolvency. Now they appear belatedly to be drawing the logical consequences of this step. A German proposal to persuade private holders of Greek bonds to swap them for bonds of longer maturity is losing traction in other EU capitals. It never appealed, in any case, to the European Central Bank or the European Commission, largely because it would have placed Greece in default and raised the danger of turmoil spreading through European bond markets.

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