Wall Street Journal
July 22, 2011
Winston Churchill said Americans will always do the right thing, but only after exhausting all the alternatives. So, perhaps, the leaders of the euro zone, who gathered for yet another emergency summit in Brussels on Thursday, finally did the right thing—or at least recognized the gravity of their predicament.
Their problem is that the time they have taken in the process of exhausting all the alternatives has extracted a heavy cost.
Financial contagion acts like a ratchet, and it is very difficult to reverse damage done in an earlier phase of panic. But with Italy and Spain being drawn into the whirlpool, the leaders finally agreed a host of measures they had previously dismissed as impossible or unnecessary: cutting interest rates substantially on the bailout loans to Greece, Ireland and Portugal; allowing the bailout funds to buy back bonds, to make precautionary loans to governments and to provide financing to help authorities shore up bank capital.
As the measures leaked out, there was a relief rally for euro assets—and the euro itself. But it is in the nature of things that when the announcements are examined in more detail, the risks become more evident. My colleague Charles Forelle has already pitched in and I commend his post. But here are a few more non-exhaustive observations.
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