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The €500bn eurozone stabilisation package agreed in the early hours of Monday, to be topped up by as much as €250bn from the International Monetary Fund, represents the first time since the Greek debt crisis erupted in October that European political leaders have moved decisively ”ahead of the curve”. All along, the only way of calming financial markets was to produce an initiative that would exceed their expectations and convince them that Europe would do whatever was necessary to save its monetary union. Read more
One frequently aired proposal for overcoming the ever more dangerous strains in European monetary union is to encourage Germany, which enjoys a large current account surplus, to buy more from Greece and other southern European countries struggling with large deficits. This, so the argument goes, would rectify the imbalances that are destabilising the eurozone and would demonstrate Germany’s sense of responsibility and solidarity with its 15 euro area partners. Read more
Better late than never. That is one way of looking at the three-year, €110bn rescue plan for Greece that was announced on Sunday by eurozone governments and the International Monetary Fund. It took seven months of indecision, bickering and ever-mounting chaos on the bond markets for the eurozone to get there, but in the end it did – and it may just have saved European monetary union as a result.
Looked at in a different light, however, the rescue package does not appear to be such a masterstroke. For its underlying premises are, first, that there should under no circumstances be a restructuring of Greek government debt, and secondly, that Greece’s troubles are unique to itself and need not be considered in a context of wider eurozone instability. Both premises are open to question. Read more
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