Financial Times
July 19, 2011
As recently as a month ago, it appeared that a second bail-out of Greece would be a relatively straightforward affair. As with previous rescues cobbled together by the European Union and its lending partner, the International Monetary Fund, staff economists would estimate Athens’ financing hole over the next three years (about €115bn), agree a reform programme with the government and start writing cheques.
But instead, European leaders have been drawn into one of the most agonised debates seen since the eurozone debt crisis erupted nearly two years ago. It has sowed confusion in financial markets and pushed borrowing costs for the third- and fourth-largest eurozone economies – Italy and Spain – to 6 per cent, levels some analysts believe are not sustainable.
The confusion stems from the interlocking, and sometimes conflicting, problems facing European leaders.
Greece’s debt burden – expected to hit 172 per cent of gross domestic product next year – is, for example, so large that it may never get paid. Officials cannot acknowledge this, however, for fear of spooking bondholders into believing default is at hand. Similarly, private investors face political pressure to bear the burden of a new bail-out – but among the largest investors in Greek bonds are Greek banks, which would take huge losses (and need more international aid) if their holdings were cut in value.
“Every time we resolve one issue, two more come up,” says a senior European official involved in the deliberations.
More
No comments:
Post a Comment