The plan to have a plan: Policymakers are a long way from forming a coherent strategy

Economist
October 8, 2011

Banks’ woes have stolen the headlines this week. But the real reason to worry about Europe is that policymakers are still flailing in their efforts to come up with a big plan, fast, to get to grips with the region’s debt crisis. From how to deal with Greece to how to build a firewall around solvent but illiquid countries such as Italy, Europe’s progress is hampered by the usual mixture of public bickering and behind-the-scenes brinkmanship.

The biggest confusion is over Greece, where European politicians are sowing short-term uncertainty by holding off on the disbursement of the next €8 billion ($10.7 billion) tranche of its first rescue package while jangling nerves with (another) public debate about whether the country needs a bigger debt restructuring. After initially promising to decide on October 3rd whether Athens would get its cash, European finance ministers this week put off a decision until November.

The reluctance to disburse this money is purely tactical, designed to push the Greek government into more reforms. Neither of Greece’s two paymasters, the Europeans and the IMF, are considering withholding cash long enough to allow a chaotic default. But with no big bond payments due in the coming weeks, they see little risk in waiting a bit longer and wringing more action out of Athens.

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