Saving the Greek Sinner

Saving Greece, Saving Europe

Why the Greek Bailout Failed

A recent example is the Greek bailout agreement of May 2010.

Germany has now opened its purse, acting as Greece s prime rescuer.

First came the Greek crisis, followed by the Greek bailout.

BERKELEY Europe is now moving ineluctably toward a bailout for Greece. There will be emergency financing.

French President Nicolas Sarkozy, meanwhile, secured eurozone participation in a bailout for Greece.

They have stopped making public statements about a possible Greek exit, and just supported a third bailout package for the country.

Although Greece was bailed out a year ago, Plan A has now clearly failed.

Greece will require another official bailout or a bail in of private creditors, an option that is fueling heated disagreement among European policymakers.

German Chancellor Angela Merkel prevailed with her demand that the International Monetary Fund participate in a Greek bailout, should one be necessary.

That will be just as unpopular as bailing out the Greeks, and probably much more expensive.

CAMBRIDGE When Greece was bailed out by a joint eurozone IMF rescue package back in May, it was clear that the deal had bought only a temporary respite.

When the economic crisis opened up the Pandora s Box of the EU s fiscal woes, Germany stepped up to the mark and helped to bail out Greece.

The eurozone (and probably the EU) cannot be saved in Greece or Finland if it cannot be saved in Germany.

To many, both in and outside of Greece, this stance was peculiar billions had been spent saving big banks, but evidently saving a country of eleven million people was taboo!

Then, distressed sovereigns that had already lost market access Greece and Ireland were bailed out by the International Monetary Fund and the European Union.

And then Greece, Ireland, and Portugal lost access to credit markets, requiring bailout packages from the International Monetary Fund and the European Union.

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So was the international community s sigh of relief after the latest financial rescue additional money from Greece s creditors in exchange for structural reforms premature? Will Greece, the twenty first century s sick man of Europe, persist in refusing to reform?

But rescuing banks is not the same as rescuing the euro. Moreover, rescuing the euro is not the same as rescuing the European project.

MUNICH Why did Greece, Ireland, and Portugal have to seek shelter under the European Union s rescue umbrella, and why is Spain a potential candidate?

Saving Resources to Save Growth

If this mismanagement continues, not only Greece but also European unity will be fatally undermined. To save both Greece and Europe, the new bailout package must include two big things not yet agreed.

On the surface, the matter at hand was the financial stabilization of Greece and of the Europe s common currency, but the real title of the play was Saving the Banks, Part II.

The game started with the bailout fund for Greece, which was followed by the European Financial Stability Facility, the European Financial Stability Mechanism, and the International Monetary Fund, which in turn were relieved by the ESM.

BERKELEY Europe is now moving ineluctably toward a bailout for Greece. There will be emergency financing.

In Germany, Chancellor Angela Merkel lost a key state election after the rescue of Greece, and Japan has a weak and ineffectual government that seems in denial of the scale of the problem that it faces.

And the local seabird rescue center, named SANCCOB, immediately launched a massive rescue operation and this soon would become the largest animal rescue ever undertaken.

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To minimize that risk, the Troika reserves currently devoted to the Greek bailout should be used to limit exchange rate overshooting capital controls would help, too.

While Greece s eurozone partners may be able to carry it for decades this way, and even to bail out Spain, the system would surely collapse under the weight of a larger economy.

Inside the European Union, the ugly term PIGS (Portugal, Italy Ireland, Greece, Spain) is now a commonplace, denoting countries that have endangered the euro s stability and are forcing northern Europeans into costly bailouts.

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