Wall Street Journal
January 7, 2011
In a column just before Christmas, I outlined some of the dilemmas that European leaders had to confront in dealing with the euro zone's sovereign-debt crisis in 2010. A further related dilemma is how much to charge cash-strapped governments borrowing from the European Union bailout funds.
It wasn't much discussed because other governments understood that high interest rates were the price for German participation in the bailouts. The government in Berlin wanted a signal, not least to its own population, that the bailout wasn't a soft option for spendthrift governments.
The problem is that those high interest rates—Ireland is expected to pay just over 6% for its money from other EU governments, and Greece will pay similar rates—make it so much more difficult to bring down the overall debt burden to levels that are sustainable.
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