Tag Archives: IIF

One giant leap for Europe, one small step for Greece

Illustration by Manos Symeonakis

A general rule emerged from the financial crisis that originated in the USA a few years ago: If a financial instrument is too complicated to understand, then you’d better start worrying about how safe it is. So, when one of the world’s leading economists, Paul Krugman, writes of the deal for Greece agreed by eurozone leaders on Thursday, “If you aren’t confused, you aren’t paying attention,” then perhaps we need to put the champagne on ice.

Thursday was undoubtedly a landmark moment for the European Union and the single currency. It was never an inevitability that eurozone leaders would arrive at a deal. When you have 17 leaders with 17 different electorates and myriad domestic concerns to juggle along with worries about the future of the euro, there can never be a guaranteed outcome. Nevertheless, the eurozone chose on Thursday the road to a possible solution rather than the path to an almost certain dissolution. The danger has not been dispelled but more time has been bought.

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How Greece inadvertently ducked under the rollover bullet

Ilustration by Manos Symeonakis

When French President Nicolas Sarkozy announced two weeks ago that French banks had agreed to participate in a rollover of Greek debt, it seemed a rare moment of relief in the country’s strained efforts to tackle its fiscal crisis. “The idea is that we won’t let down Greece and that we’ll defend the euro, which is in the interest of us all,” said Sarkozy, reflecting a sense of purpose and unity that the European Union has often lacked over the last 18 months.

However, the French proposal — which we will come to — soared briefly on the wings of hope before crashing into the immovable obstacle of reality. Two days of talks between bankers and insurers last week led to the Paris blueprint largely being discarded. However, the rejection of the French scheme appears to have helped Greece dodge a debt bullet. The more experts scrutinized the French plan, the more they realized it was a seriously flawed proposal that would worsen Greece’s debt problems.

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