Three wonderful ironies stand out from the tentative eurozone plan to back Greece in its hour of need. The Eurogroup’s leaders have agreed to pressure Greece to shore up its public finances, use International Monetary Fund expertise to help set the framework for reducing borrowing, but back Greece with an offer of emergency funds if it required liquidity and could not borrow in the markets. Socialist EU leaders issued a statement last night, talking about “a last-resort mechanism of financial support, coupling lending by private banks with a guarantee to be provided by eurozone members”.
First, the Greek crisis stems from the country’s revelation that the country had fabricated its public finances. The “solution” is for France and Germany to fabricate their public finances by guaranteeing bank loans to Greece rather than lending directly.
Second, this fabrication comes at a price and who will be the big beneficiaries. You’ve guessed it. Investment bankers who may get the chance to arrange eurozone guaranteed lending to Greece. The bankers are doing nothing wrong, but they should not be in a position to profit simply because big and rich countries are too scared to admit they are lending money directly to Greece.
And third, Germany and France have just turned themselves into the new monoline insurers on the block. Although the monolines, including Ambac and MBIA, contributed to the financial crisis when their credit status was called into question, European countries think exactly the same structure of lending AAA rated status to others is the solution to the Greek crisis. It’s all enough to conjour up certain images.