Financial Times
July 15, 2011
After a long and costly delay, European officials’ narrative about the debt crisis is changing. This is the good news. The bad news is that Europe still lacks the political and technical leadership needed finally to catch up with this damaging crisis. As a result, Europe will soon be forced to consider radical options.
For too long, Europe has pretended that the crisis in its periphery was liquidity-driven rather than solvency-induced. Officials dismissed the need for debt restructuring, preferring a bail out for Greece, Ireland and Portugal that piled new debt on top of an already unsustainable burden.
At first glance, this had the merit of delaying decisions that involve highly complex – and uncomfortable – financial engineering and political agreements. It also gave time to the weaker entities, be they countries or banks, to reduce their vulnerability.
But the delay has been costly. Peripherals implementing courageous austerity measures have been losing the support of citizens who feel, rightly, that their sacrifices have done little to improve prospects for their country.
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