Economist
June 15, 2011
Today has been nasty day for markets, those in Europe especially. Equities are off. The euro is falling against the dollar. And yields on the debt of euro-zone periphery governments are rising to new heights. The yield on 3-month Greek securities is now over 12%. Markets want nothing to do with Greece if they can help it.
European yields have spiked many times before, and each time European leaders have responded with a new bail-out package or other reassurances to prevent Greek panic from fueling a broader contagion. (Over the whole of the crisis, of course, this strategy has been a bit of a disappointment.) So where's this go-round's intervention? Well the trouble at the moment is that Europe's leaders can't agree on one.
It has become clear that euro-zone governments will be reluctant to contribute more support to Greece unless its private creditors also take a hit. But there is significant disagreement over how to achieve this haircut. All the plans currently under discussion are nominally "voluntary", but voluntary means different things to different people. The German plan is to convene a meeting of Greece's major private bondholders in order to "convince" them to participate in a debt exchange, in which current obligations are traded for new ones with extended maturities. The upside to this plan is that the more coercive aspects of it are likely to make for a high level of creditor participation, and a correspondingly larger benefit to Greece.
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