Financial Times
September 12, 2011
From the day it was agreed in late July, the €109bn bail-out of Greece – the second international package in 15 months – appeared star-crossed. It was by far the most complicated rescue of a eurozone country to date, and even finance ministry officials who signed up to it had a hard time explaining what exactly they had agreed to.
Less than two months later almost every part of the new package – as well as the previous €110bn bail-out, agreed last May – is on the verge of collapsing. The Greek economy is in a tailspin, bondholders are in revolt, and voters in Europe’s creditor countries are increasingly calling on their leaders to cut Athens loose. “There can be no more taboos,” Philipp Rösler, German economy minister, said at the weekend. “That includes, if necessary, an orderly bankruptcy of Greece.”
A central problem is that the make-up of the July package was deeply flawed, posing a threat to its survival, says Sony Kapoor, head of economic consultancy Re-Define. “I believe that enough common sense and political will can be summoned so that the collapse of the deal is not imminent, [but] I am less confident about the prospects later this year.”
Unlike the previous rescue, and similar bail-outs of Ireland and Portugal, the July deal contained more than traditional low-interest loans that would enable a struggling sovereign to pay the bills for three years while its economy was restructured. In part because of mounting political opposition in the north of the continent, European lenders vowed to find new ways to bail out Greece without leaning on their own taxpayers for the money.
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