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July 18, 2011

Germany argues for private investor participation; ECB against

German Chancellor Angela Merkel's government is set to attend the Thursday (July 21) emergency meeting of eurozone leadership, but is threatening to not show up if concrete plans have not been formulated for the summit meeting. Having cancelled a meeting for the previous Friday, the eurozone leadership is in the midst of tossing ideas back and forth to create an agenda for the Thursday meeting that the disparate European countries can agree on. The most urgent matter is keeping the Greek debt crisis "under control," as the numbers continue to mount on what a second bailout will cost in order to prevent default. The original bailout from May 2010 is running its course (and added to accumulated Greek debt now rising towards €500 billion), a second bailout is expected to cost as much as the first (€110 billion).

The eurozone future belongs to Germany: Merkel's government may refuse to back another bailout like the first, and has long been wanting private investors to help carry the load, something which the European Central bank has refused to consider. At this point there seems to be only a few ways forward: "selective default" which will spread the damage around through various banks in Europe but would reduce the load on Germany to bankroll the enterprise of saving some of Greek debt for the future; or, allowing an actual sovereign default with Greece leaving the eurozone (and to possibly be followed shortly thereafter by Spain, Portugal, Italy and Ireland?)

Extra reading: At the Wall Street Journal, a survey of economists indicates nearly everyone is expecting a Greek debt restructuring, as the numbers are now simply too large to expect Greece to pay them down. Also expected is Italy to soon follow Greece into the same predicament. Wall Street Journal

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