The way to end the Greek farce

by Hugo Dixon

Reuters
July 12, 2011

The Greek crisis is fast descending into farce. The position of Germany, the euro zone’s main lender, is increasingly absurd. It is adamant that there will be no restructuring of Greek debt — at least, until 2013. And yet it is equally insistent that Athens’ private-sector creditors should contribute up to 30 billion euros to a new, 120 billion euro bailout. That would effectively amount to a half-cocked restructuring.

German Chancellor Angela Merkel’s inconsistencies seem based on her view that a sovereign restructuring won’t happen before 2013 just because she said it won’t. But her conflicting demands are becoming virtually impossible to reconcile. The ratings agencies are threatening to say that Greece has defaulted if there’s so much as a whiff of arm-twisting in the supposed “voluntary” rollover.

While the opinions of the agencies wouldn’t mean that Athens had actually defaulted — they are just opinions, after all — the European Central Bank is acting as if their thumbs-down would open the gates of hell. To show it really means business, the ECB is threatening in such a scenario to pull the plug on Greek banks, something which really would cause havoc. There’s clearly an element of bluffing on the part of the ECB — but it is becoming more transparent by the day, to the point of absurdity.

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