Reuters
September 12, 2011
Spiegel has an excellent, long, and detailed article about the tension at the heart of the euro crisis — the one between Greece and Germany. Europe has thrown $150 billion at Greece to date and has nothing to show for it except for a temporarily averted sovereign default. If that kind of money continues to rain down on Greece, the outcome will be similar — immediate crisis averted, but no real change in terms of the Greek sovereign finances. Austerity, it turns out, is working exactly the way it always does: it’s slowing down the country and making any recovery pretty much impossible.
Up until now, the EU’s attitude to Greece was a bit like Tim Geithner’s attitude to the debt ceiling: Greece will implement the reforms it has promised, it will recover economically, we will give them the liquidity they need from the EFSF, there is no alternative. But now, starkly, two alternatives have emerged blinking into the harsh light of the market. Either Greece defaults and remains in the euro; or it defaults and leaves the euro. This is not an orderly London Club bail-in default with a modest 21% haircut and an exit yield of 9%: rather, it’s a proper we-can’t-pay-our-debts default with significant losses for all banks holding Greek debt — including the ECB.
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