Wall Street Journal
July 21, 2011
At the 11th hour, a new solution to save the euro has emerged—and it shouldn't be lightly dismissed.
Until now, all the options on the table would trigger an automatic Greek default. But a new French proposal would see Greece given the funding it needs without any requirement for haircuts or bond swaps. Instead, the financial sector will share the burden of future bailouts via a new tax. This idea looks promising.
It should now be abundantly clear that the euro zone's priority must be to avoid any immediate Greek debt default. Germany's efforts to force private-sector involvement in any fresh bailout have been catastrophically ill-judged. It has effectively replaced the long-understood principle that supra-national authorities provide liquidity support to countries in financial difficulty, giving them time to sort out their problems, with a new doctrine of automatic bail-in as a precondition of support. The result has been to destabilize the entire euro-zone government bond market and financial sector.
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