Economist
October 26, 2011
The euro crisis began in Athens some two years ago as the full extent of its dire public finances first became apparent. Now it has turned full circle again. Along with the acute difficulties in constructing a much stronger firefighting fund to protect countries like Italy, especially while Silvio Berlusconi still remains in charge, the agony of Greece is the main reason why today’s summit in Brussels looks set to disappoint those expecting that it would deliver a fully worked-out solution.
At their last make-or-break meeting—the “emergency summit” of July 21st—these two interlinked problems were also crucial since Greece’s woes had deteriorated and Italy had first come under attack by bond vigilantes. The leaders of the 17 euro-area countries announced measures to deal with both of them. Greece got a second bail-out, amounting to €109 billion ($152 billion) on top of the first one, announced in May 2010 in conjunction with the IMF, which was worth €107 billion (originally it was €110 billion but Slovakia refused to participate and Ireland and Portugal ceased to contribute when they, too, were bailed out).
This second rescue was tied to banks and other private institutions agreeing to take a modest hit on their lending to Greece in what was euphemistically called “private-sector involvement” (PSI). The summit also agreed upon measures to beef up the euro area’s rescue fund, the EFSF (European Financial Stability Facility), and to give it a freer hand to protect other vulnerable economies, in particular Italy but also Spain.
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