Financial Times
June 5, 2011
The European Council will probably step back from the brink at its meeting on June 23-24, with national leaders agreeing a new loan for Greece. The alternative is a messy, disorderly Greek default in July. The finance ministers agree that private investors should share the burden. They have no clue how, but I am sure they will think of something. And then they will have to do it again for Ireland, and for Portugal. By 2014, the vast majority of Greek, Irish and Portuguese debt will be guaranteed by the other member states.
What then?
If any of these countries were to default, the immediate consequence would be a large fiscal transfer from the creditor countries. I cannot see the Germans, the Dutch or the Finns simply handing over the cash and keeping on smiling. In return, they would demand that the recipients accept a partial loss of fiscal sovereignty. The recipient countries would call this colonialism and demand that everyone else accepted the same. And so, a new political union is born. Or not.
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