Guardian
September 26, 2011
'Believe it when you see it' has been a reasonable stance to adopt when assessing the eurozone's stumbling responses to its sovereign debt crisis. So it remains after the Washington pow-wow.
It is easy to accept that eurozone leaders, assaulted by demands from the International Monetary Fund, the US and others to raise their game, could pledge to consider radical remedies. It is harder to believe that, when faced with suspicious electorates at home and the sheer complexity of assembling a €2tn (£1.7tn) war chest, good intentions can be turned into firm commitments within six weeks – George Osborne's (probably realistic) deadline.
The simple(-ish) part would be a U-turn that acknowledges that a sizeable Greek debt default is inevitable so it's best to get on with it. Investors have worked out already that the modest haircuts announced in July will not be enough. And, if a substantial Greek default is finally to be allowed, the eurozone might even be able to admit that its summer stress-tests on banks were inadequate and that recapitalisation of the banking system is required. Indeed, in practice, it doesn't have a choice. By demanding more capital for European banks last week, the IMF backed the eurozone into a corner.
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