Greece: Dangerous precedent?

by Robert Peston

BBC News
February 21, 2012

I am on my way to Rome to talk to a taxi driver about the eurozone crisis.

No, not because any rational person would have lost faith in the ability of the European Union's leadership to rebuild confidence in the strained currency union - but to see the impact on livelihoods of attempts by the Italian government to woo investors by modernising the economy, which includes abolishing restrictive practices (including the system for licensing taxis).

But as dawn has broken over London, I have been breakfasting on the statements by eurogroup finance ministers and the committee negotiating on behalf of private-sector lenders to Greece, which in theory represent a historic breakthrough in attempts to avert a default by the Greek government.

I have three thoughts.

First, that if private sector lenders sign up to what their negotiators have agreed with the Greek government, it will be momentous: a reduction of 53% or 107bn euros ($142bn; £90bn) in the face value of what the Greek government has borrowed.

In the long and tawdry history of governments borrowing more than they can afford, this represents a remarkably huge, unprecedented write-off - all the more astonishing because Greece is a pretty small economy.

In the cold light of day, it is not clear which is the more depressing: that successive Greek administrations ever thought it sensible to borrow as much as they did, or that banks and investors thought it wise to lend to them.

Those who believe in the pure rationality of markets or of the state may need to re-examine their respective faiths.

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