cat de benefică a fost înființarea u.e pentru europa posibilă temă pentru licență

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Charts, maps and infographics

Daily chart

Government debt

More pain to comeJun 29th 2011, 15:48 by The Economist online

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The cost of reducing government debt

AMID strikes and violent public protests, on June 29th Greece's parliament voted in

favour of the government's emergency package of austerity measures. The package,

which requires a second vote to implement it on June 30th, is necessary. Without it, the

European Union and the International Monetary Fund will not release another tranche of

a large rescue loan to the country. And without the loan, Greece cannot afford to meetthe interest payments on its monumental government debt. But because the package will

bear down too heavily on ordinary Greeks without addressing necessary structural

reform, it is likely to fail. Many other rich countries have big debt burdens and are facing

similar problems. The chart below shows OECD calculations of what it would take

governments to reduce gross debt to 60% of GDP by 2026. This is around the level

considered healthy and is also the ratio set by the widely ignored Maastricht agreement,

which is meant to govern debt in the European Union. It is not pretty.


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Greek debt

Stepping back from the edge?Jun 29th 2011, 12:01 by R.A. | WASHINGTON

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ALL eyes are on the Greek parliament, where a vote on a new package of austerity

measures is imminent. Europeans and the IMF have made additional payouts of their

already agreed Greek support plan dependent on adoption of further austerity measures,


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deemed necessary to get the struggling nation back on track to meet its deficit reduction

goals. The Greeks, not without cause, are angry with the new demands on them. The

contractionary impact of the cuts in place has dragged the economy deeper into

recession, making progress on fiscal consolidation slow. Meanwhile, European leaders,

and the European Central Bank especially, are reluctant to foist any of the pain of

insolvency on creditors.

Given the apocalyptic language in the press ("suicide vote") and the visible anger in the

Athens streets, one might assume that the worst is nigh. Markets, however, are behaving

as though passage of the austerity measures is a foregone conclusion. European markets

are up, the euro is strengthening, and yields on peripheral debt are backing away from

recent crisis highs. Traders are anticipating a positive vote, securing aid payments to

Greece and forestalling any immediate meltdown.

Yet virtually no one believes that the Greece's underlying difficulties, to say nothing of

the periphery's as a whole, have been addressed. Greece will need a new aid deal

eventually; it cannot hope to return to markets to borrow for some time. Negotiations

over that package will lead to more recriminations, more demands on Greece, and more

brinksmanship.

But for now, all eyes are on the Greek parliament, where the immediate crisis is likely,

knock wood, to be defused...

UPDATE:The austerity measure passed. Europe's disaster remains a slow one, rather

than a fast one.

http://www.economist.com/blogs/newsbook/2011/06/greek-debt-crisis

Germany and the euro

Merkel's hazardous courseGreeces troubles are causing acute discomfort for Germanys chancellor

Jun 23rd 2011 | BERLIN | from the print edition


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Between Scylla and Charybdis

THE streets of Berlin are quieter than those of Athens, but the euro crisis is making life

almost as hellish for the German chancellor, Angela Merkel, as it is for the Greek prime

minister, George Papandreou. Partly because of it, Mrs Merkel is going through her

roughest patch so far in more than five years in office, says Renate Kcher of

Allensbach, a pollster. Members of her coalition, consisting of her Christian Democratic

Union (CDU), its Bavarian sibling, the Christian Social Union, and the liberal Free

Democratic Party, are restive about the costs of saving the currency. The opposition is

openly speculating, prematurely, that the government may fall.

The immediate danger is the wrangle over a second rescue for Greece. On June 10th the

Bundestag endorsed a bail-out on condition that private investors make a fair

contribution. Even then, ten legislators from the coalition either voted no or abstained, a

worrying dent in the governments 20-vote majority. Since then, Mrs Merkels room for

manoeuvre has narrowed. On June 17th, under French pressure, she endorsed the non-

confrontational Vienna model, under which Greeces creditors are expected voluntarily

to buy new Greek bonds as old ones fall due. That makes it less li kely that they will make

the large contribution that Mrs Merkels parliamentary allies are demanding.


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Explore our interactive guide to Europe's

troubled economies

Television images of Greeks haranguing their government over reforms do not help. The

protests make it very difficult for MPs to explain the rescue measures to voters, says

Klaus-Peter Flosbach, the CDUs fiscal-policy spokesman in the Bundestag. Nearly half

the electorate favours throwing Greece out of the euro, according to a recent poll.

Depending on how it is structured, the Greek rescue may not need explicit approval by

the Bundestag, but there will be pressure to bring it to a vote. If that happens the

coalition will support it, believes Mr Flosbach. The MPs know what is at stake. The mood

is fiercer in Finland and the Netherlands, which have influential Eurosceptic parties,

German officials point out.

Related topics

y Germanyy Bundestagy Europey Greecey Angela Merkel

Even if the Greek hurdle is overcome, others loom. The Bundestag will vote later this

year on whether to top up the temporary European Financial Stability Facility, which

helped to finance the Irish and Portuguese bail-outs, and to create a permanentsuccessor, the European Stability Mechanism (ESM). Many coalition MPs want every ESM

rescue put to a parliamentary vote, which would make it unworkable. Germanys highest

court is deliberating on complaints that the bail-outs violate the constitution and

European law.

Mrs Merkel sees herself as steering between catastrophic alternatives. Hawkish demands

for imposing losses on creditors or submitting every future bail -out to parliamentary

scrutiny could endanger the euro. But the doveish idea that only more Europe will

resolve the crisis is also distasteful. Mrs Merkel rejects fixes such as a finance minister for

the euro area (an idea floated by Jean-Claude Trichet, president of the European Central

Bank) or Eurobonds backed by every country in the zone. To spectators on both sidesher cautious middle course, with its many abrupt corrections, looks directionless,

defensive and eventually doomed.

http://www.economist.com/blogs/dailychart/2011/05/europes_economies

Europe's economies

Strong core, pain on the periphery


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May 17th 2011, 14:25 by The Economist online

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THE fear that Greece's sovereign-debt crisis might presage similar episodes elsewhere in

the euro zone has been borne out. In November, Ireland joined Greece in intensive care,

becoming the first euro-zone country to apply for funds from the rescue scheme agreed

in May 2010 in concert with the IMF, and in April this year Portugal followed suit.

Sovereign-bond spreads (the extra interest compared with bonds issued by Germany, the

safest credit) are now much higher in all three of the bailed-out countries then they were

in May 2010. Promises to tackle budget deficits through public spending cuts and tax

increases have offered little reassurance to bondholders, who know that austerity will

take its toll on growth.

The interactive graphic above (updated May 17th 2011) illustrates some of the problems

that the European economy faces. GDP picked up in most countries through 2010 but

there were marked differences in performance. Germany was especially sprightly: its

economy expanded by almost 5% in the year to the first quarter of 2011. But GDP in

Greece has crashed under the weight of austerity; Ireland contracted sharply in late

2010; and Spains economy is barely growing.

In many countries unemployment has not gone up by as much as one might expect given

the depth of the crisis. Germany now has lower unemployment than before the crisis,

thanks in part to a short-time working scheme and flexible time arrangements in its

manufacturing sector. The worst-affected countries include Ireland and Spain, where a

collapse in construction has swollen the dole queues. Youth unemployment is especially

high in Spain, prompting protests in May. Britain has fared better because its tight

planning laws limited the growth of its construction sector during the global housing

boom.

Weak growth and high unemployment spell particular trouble for countries that already

have high levels of public debt. That explains why Greece was first to lose the confidence

of the markets with a public-debt-to-GDP ratio of 127% and a budget deficit of 15.4% of

GDP in 2009, making it the euro zone's outlier country. Ireland had low public debt going

into the crisis, but the state became crippled by its pledge to backstop its banks together

with the hole that was blown in its tax revenues by a combination of recession and

housing bust. Forecasts in mid-May from the European Commission showed public debt

vaulting above 100% of GDP in both Ireland and Portugal by the end of this year and

reaching a dizzying 158% of GDP in Greece. Other countries are pruning before the

markets exert real pressure: Britain's debt has the longest maturity of any EU memberbut it is still aiming to get its finances in order within four brutal years.

AUDIO: Our correspondents on why struggling euro-zone economies should restructure

their debt sooner rather than later.


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Europe's debt crisis

Europe's damaging dithering continuesJun 20th 2011, 13:45 by R.A. | WASHINGTON

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CHARLEMAGNE summarises the latest developments from Europe:

After seven gruelling hours in Luxembourg, which included a video conference with colleagues from

G7 countries, the finance ministers of the 17 countries of the euro zone decided to delay until July

the disbursement of 12 billion ($17 billion) in loans from the European Union and the IMF.

By then, they said, two issues would have become clearer. Firstly, the finance ministers say they

want to know how far Greeces private creditors are willing to help voluntarily by rolling over

Greek debt when current bonds mature. This has become vital for German domestic opinion to

sweeten the bitterness of having to support a second bail-out for Greece.

Secondly, the euro zone wants to know whether the reshuffled government of George Papandreou,

the embattled Greek prime minister, will secure a vote of confidence in the Greek parliament,

which is expected to come on Tuesday. Greek MPs are also due to approve, by the end of June, the

next round of austerity measures and structural reformsincluding a wholesale privatisation of

state companies and lands...

[I]n the end the ministers decided they could not issue a blank cheque. Jean-Claude Juncker, the

prime minister of Luxembourg, who also presides over the euro-area finance ministers, declared: I

cannot imagine for one second that we would commit to finance Greece without knowing that the

Greek parliament has given its vote of confidence to the government, and that it has taken on

Greeces commitments [to the EU/IMF].

So why spend seven hours behind closed doors, only to decide to wait and see? Because, Mr

Juncker said, figuring out how to squeeze out some funding from private creditors, without it being

deemed a default, is very complicated. As a result of the discussion, he said, the euro group had

cleared the way for a solution.

The only obvious progress tonight was that Germany has formally abandoned its demand that

existing bonds be swapped for new ones with a seven-year maturity. Instead, the ministers agreed

that private creditors would be asked only for informal and voluntary roll-overs of existing Greek

debt at maturitywhile avoiding a selective default for Greece. The only stipulation is that the

resulting contribution be substantiala weaker formulation than the original German wish for a

contribution that is 'substantial, quantifiable, reliable and voluntary.

One must assume that the sums that can be raised for the rescue package will now be moremodest, which raises the question of whether the prevarication is really worth the turmoil it is

causing.

Yields are up sharply around the European peripheryin Spain and Italy as well as in

Greece, Ireland, and Portugal. The euro zone is courting a dangerous contagion. And for

what? Greece has already agreed to significant austerity measures and continues to

suffer through a revenue-crimping recession for its trouble. This new, miserly approach

may make it more difficult for the Greek parliament to pass a new, tougher package. And


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if Greece doesn't pass it? Europe will have to turn around and offer more generous terms

or face serious financial market consequences. This is the rub for the austerity-hungry

officials across Europe: if debt restructuring is sure to be catastrophic, then the flailing

peripheral countries have an unbeatable trump card in these negotiations. And if debt

restructuring isn'tlikely to be catastrophic? Then the reluctance to allow a Greek default

makes no sense.

It is immensely frustrating to watch Europe, the ECB, and the IMF fumble their way

toward the inevitable choicea euro-zone break-up or restructuring and tighter fiscal

union. Their mishandling of the situation threatens to bring more countries into the

markets' sights and is impairing confidence around the world.

Euro-zone crisis

Their euro crisis, our double-dipJun 17th 2011, 18:21 by M.S.

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GIVEN that Greece makes up just 3% of the euro zone's economy, it's nutty enough that

the fate of the euro now hinges in large measure on the outcome of the political

maelstrom in Athens. (Though that's not all it hinges on. It could hinge on nationalists in

Helsinki, centre-leftists in The Hague, or the personal relationship ofNicholas Sarkozy

and Angela Merkel. Basically there are a lot of hinges.) But it's even nuttier that the fate

of America's recovery partly hinges on Athens, Brussels and Frankfurt too. If the balloon

goes up at the European Central Bank, things in America are likely to start looking very

double-dippy. Kevin Drum's summary:Within the EU, it's the politicians vs. the central bankers. The politicians want to force the banks

that own Greek bonds to share the pain of a Greek semi-default, but the ECB is absolutely,

completely dead set against it. The reasons for the ECB's hard line on this are a little obscure, and

theories range from the fairly ordinary (the ECB believes it would cause chaos and bank failures) to

the outre (the ECB wants a crisis in order to force European governments into closer fiscal union).

For what it's worth, I spent yesterday morning talking to a member of the ECB's board of

directors and I really think the main explanation is the ordinary one. The ECB doesn't

believe it's possible to make private holders of Greek debt "share the pain" without

precipitating a Greek default. They think if you pressure banks to roll over Greek debt,

that debt will become untradeable, which is the same as "worthless"; the ratingsagencies will deem the failure to pay at maturity to be a technical default, which may

trigger credit default swaps; the Greek banking system will become insolvent, meaning

nobody in Greece will have any money anymore; recapitalising those Greek banks will

have to be done by governments that actually have money, ie the northern European

ones; and ultimately the costs will all fall on the northern European taxpayer anyway.

Meanwhile northern Europe's pension funds will be hit by the c redit panic, which again

will hurt the average citizen. The ECB folks sincerely think there's no way around having

taxpayers pick up the bill for saving Greece and the euro. That said, they also seem to


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think that if the crisis forces Europe towards fiscal unity, that wouldn't be a bad thing

either.

Whether they're right or not is a different question. My colleague cites a new letter by

the San Francisco Fed's Fernanda Nechio with a chart showing that while ECB monetary

policy has been more or less right for the euro zone "core" countries (Germany, France

etc.), it's always wrong for the "periphery" countries (Greece, Portugal, etc). But Paul

Krugman argues that even this is too generous:

[T]he letter uses a Taylor rule based on the unemployment gap, not the output gap (which is what

Taylor originally used). Either one is OK but if youre going to do Europe-US comparisons, you

need to recognize that there are big differences in labor market institutions, so that comparable-

depth recessions produce a much larger rise in unemployment in the US. It is not true, as the

report says, that the European recovery has been notably faster than the US recovery in terms

of output gaps, were similar.

And if youre going to use unemployment gaps, Id argue that you really dont want to use the

same coefficients on the two sides of the Atlantic.

So heres the thing: if you use the output gap Taylor rule that, for the US, corresponds to the

unemployment version of the rule used in the SF Fed letter, it surely implies a negative interest

rate. In short, the ECB has no business raising rates.

In other words, Mr Krugman says, ECB monetary policy isn't right for "core" countries;

it's only right for Germany.

This concludes this episode of "Americans nervously ridiculing Europeans who may

profoundly influence their economic fortunes." One thing I do want to note is how the

euro-zone crisis has changed the flavour of much American "oh, those silly Europeans"

criticismnot so much Mr Drum's, my colleague's or Mr Krugman's, but the kind of stuff

you encounter in conversation. The standard critique used to be: "Oh, those silly

Europeans, when will they overcome their separate working cultures, labour markets and

fiscal policies and come together in one big monetary and economic union like we have in

America?" Now, the critique has shifted to: "Oh, those silly Europeans, how could they

have thought they would ever be able to overcome their separate working cultures,

labour markets and fiscal policies and come together in one big monetary and economic

union like we have in America?" Countries will obviously never stop finding ways to make

fun of each other, but it's interesting from an intellectual -history point of view to watch

how the ridicule can shift polarity over time.

Slovakia and the euro

Slovakia is still playing toughJun 16th 2011, 17:46 by K.M. | BRATISLAVA

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A SMALL country should aim to avoid antagonising its allies. Slovakia, previously known

as a committed euro-enthusiast, earned the wrath of both Brussels and Berlin last year

when the new government decided to opt out of the first Greek bail-out.


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Since then, Slovak diplomacy has upped its game. As euro-zone leaders ponder a second

rescue for Greece, Bratislava is displaying a slightly more flexible attitude. This week,

Slovakia sent a cautious signal to its European partners: if it is asked to approve another

package for Athenswhich could reach up to 120 billionthe answer will be yes, but.

This was not Slovakia going soft. Richard Sulik, leader of the market -friendly Freedom

and Solidarity (SaS), a junior partner in the ruling centre-right coalition, says We want

to reach an agreement that will involve a declaration of insolvency. Iveta Radicova, the

prime minister, and her brainy finance minister, Ivan Miklos, have also been heard to

murmur about bankruptcies.

Falling into line behind the Germans, the Slovaks want to see Greece's private creditors

take a share of the pain by extending the maturity of their bonds by seven years.

Slovakia also wants the Greek government to strike a deal with the opposition on more

belt-tightening, structural reform and privatisation. Finally, the Slovaks insist that any

new loan for Athens must be guaranteed by Greek state property.

Euro-zone finance ministers had been fretting over Slovakias stance since last week

when Handelsblatt, a German economic newspaper, quoted a highly placed EU officialsaying that a second Slovak "no" could scupper the plan for Greece.

Unlike the first Greek bail-out, the second one depends on Slovakias approval as it would

draw on funds from the euro areas 440 billion European Financial Stability Facility

(EFSF), which requires a unanimous endorsement from the 17 countries that use the

euro.

Slovakias ruling centre-right parties regularly take the EU to task for going easy on the

likes of Greece, Portugal and Spain. They claim to dislike what they see as the habit of

rewarding extravagance and punishing frugality. But in recent weeks this criticism has

been repackaged. Controversial remarks about bailouts that resemble Ponzi schemes

are now rarely heard.

There are several reasons for this. Fear of alienating the public is one. Despite the

grumbling of officials, most Slovaks remain enthusiastic about the euro. In March 73%

said that they benefited from the single currency: a euro-area high.

The government may also simply be basking in its own success. The two main issues it

raised in Brussels at the time of the first Greek rescue plandebt restructuring as a

prerequisite for future bail-outs and a tougher implementation of the rules governing

public financeshave both been addressed by the European Stability Mechanism (ESM),

the permanent bail-out fund that should replace the EFSF in 2013. Still, Slovakia has not

yet thrown its support behind the ESM, despite having been encouraged by many experts

to do so.

The shift in the position of Germany and other countries also plays a role. The Slovaks

are no longer the radicals. Indeed, some observers have been bold enough to suggest

that the country has been doing a good job of communicating not only its own message

but Angela Merkels, too.


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The euro crisis

Mr IMF says: More Europe, pleaseJun 21st 2011, 0:52 by Charlemagne | LUXEMBOURG

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SO IT takes an American to remind Europeans about the importance of economic

integration, at a time when many of them are losing faith in the viability of the European

project. That the American in question should be John Lipsky, the man who has been

running the IMF since the downfall of Dominique Strauss-Kahn, somehow adds to the

power of his words.

Few people normally pay attention to the IMF's article IV mission to the euro area, a

sort of annual health check. But coming at a time when the euro area is in fibrillation, the

opinion of an external expert is bound to draw some attention. Mr Lipsky took the

opportunity to deliver two strong messages.

Firstly, the Europeans need to get a grip on the sovereign-debt crisis, which is

threatening to overwhelm the euro area's recent economic gains and cause large

global spillovers. In other words, contagion could spread from the periphery to core

European states, and could infect other economies too. (Conversely, resolving the crisis

would help the global economy.)

Secondly, and more interestingly, the way to deal with the problem is not byrestructuring the debt of troubled European states, but by greater economic integration.

In other words, more Europe. Mr Lipsky concluded his remarks by chiding Europeans

for losing their sense of history and ambition.

Looking ahead, it is important to learn from the crisis and define a clear vision for the future. The

story of European integration sinceWWII has been an incredible successnot least because the

leaders who built the European Union and the euro area looked beyond the crises of their day.

Indeed, if the euro area is to be more stable and resilient and live up to its growth potential, it will


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have to press ahead with a broad reform agenda now. Many welcome initiatives are under way, but

in our view in nearly all areas a few crucial additional steps are needed to make them add up to a

consistent set up.

Such words would gladden the heart of the most passionate euro-federalists, such as

Guy Verhodstadt, the former Belgian prime minister, who declared recently

(interviewhere, in French) that the only answer to the euro-zone crisis was to move

towards the United States of Europe. By contrast, a long report in the current Der

Spiegel, a German weekly, captures the sense of gloom as it argues that the euro is

becoming an ever-greater threat to Europe's common future.

The IMF's report is full of exhortations for the EU to move more decisively towards a

truly cohesive approach. To begin with, European leaders should stop the unproductive

debate on debt restructuring/reprofiling, which risks spreading contagion. Mr Lipsky

smiled when asked about this, saying he had asked for the word unproductive to be

removed from the statement after some real progress was made during ill-tempered

talks the previous night (ie, Germany gave up on the idea of debt swaps).

The IMF says European policymakers have focussed on national priorities, but the key to

success is the strength of the economic union. The EU's single market should bedeepened, capital markets should be integrated and countries should give up the idea of

protecting national champions from takeovers. There is a need for a Europe-wide fund

to support banks that are in trouble or need to be wound up. The main European bail -out

fund, known as the European Financial Stability Facility (EFSF), should be boosted and

allowed to buy up the bonds of troubled states. Fiscal rules for governments need to be

tightened, with more automatic sanctions for rule-breakers and a greater say for the

European Commission in monitoring and guiding economic policies.

The IMF has adopted an unexpected position in another sense: it has become a thorn in

the side of those creditor countriesmainly AAA-rated Germany, the Netherlands and

Finlandthat want the private sector to take up a part of the burden in the EU's second

bail-out of Greece, which is expected to add up to about 100 billion ($144 billion) on top

of last year's 110 billion rescue.

With Greece on the brink of default, Mr Lipsky was adamant in a meeting with euro-zone

finance ministers on Sunday night that he could not endorse the next tranche of EU/IMF

money for Greece, totalling 12 billion, due in July. Before doing so, he says he must

have assurances that the EU would make up the financing gap that Greece will suffer

starting next year, because it will be unable to borrow on the markets as once hoped.

Creditor states want a substantial but unspecified part of the assistance to come from

private bondholders voluntarily rolling over the Greek debt when the current bonds

mature. If the amount is small, says one minister, his country will not pay for Greece. All

this was too uncertain for Mr Lipsky's liking. He wanted euro-zone states to guarantee

that the money would be available one way or another, regardless of how much they

can squeeze out of the private sector.

Luckily for everyone concerned, all eyes are now on Greece. George Papandreou, the

Greek prime minister, faces a vote of confidence today and must get parliamentary

approval for a large package of deficit-cutting measures and structural reforms.


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Still, the muttering among officials in the shed that serves as a glum venue for EU

ministerial meetings in Luxembourg is that Mr Lipsky is being much tougher than Mr

Strauss-Kahn would have been. And after his rousing call for European endorsement,

they can hardly accuse him of being anti-European.

Growth

Recent historyJun 28th 2011, 15:20 by R.A. | WASHINGTON

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I LOVE today's Daily chart:

Here's some of the accompanying text:

The chart below shows a population-weighted history of the past two millennia. By this reckoning,

over 28% of all the history made since the birth of Christ was made in the 20th century. Measured

in years lived, the present century, which is only ten years old, is already "longer" than the whole

of the 17th century. This century has made an even bigger contribution to economic history. Over

23% of all the goods and services made since 1AD were produced from 2001 to 2010...

More person years have been lived in the first decade of the current century than in all of

the 17th century. And nearly 80% of the economic output of the last millenium has been

produced in just the last 110 years. Everyone likes to think that they live in historical

times. As it so happens, we do.

Small enough to failJun 28th 2011, 17:25 by A.M | LONDON

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AN ALIEN visiting earth for the last few years could be forgiven for thinking there were

only two types of banks: those too economically important to fail and those too politically

sensitive to fail. For the latter, think of the British government slapping a 100%

guarantee on Northern Rock deposits, saving savers (who of course are voters too) from

the consequences of a bank failure. The apogee of this strategy came in Ireland, where

the governments decision to guarantee the entire banking system has hobbled the

country with debt.

The alien might be surprised then, by recent events in Europe. Two weeks ago Britains

Financial Services Authority ordered the liquidation ofSouthsea Mortgages and

Investments, a tiny lender hailing from the town of Havant on Englands sleepy south

cost, after loans to property developers went sour. With an asset book of only 10m and

deposits of around 7.5m, the bank was clearly not too big to fail. But the Treasury has

set a precedent by refusing to compensate the 14 customers who had deposits in excess

of the 85,000 covered by the governments deposit guarantee scheme. This marks the

first application of Britains new bank resolution regime, which allows for senior

unsecured bondholders, as well as depositors, to share in the pain of restructuring.

In Denmark a similar regime claimed its second victim this week. Fjordbank Mors entered

the winding-up process, following Amagerbanken in February. Although both lenders are

small, both had outstanding bond debt as well as deposits. Senior creditors of Fjordbank

Mors are expected to suffer haircuts of around 25% on their principal.

This might be a welcome return to normality. Bondholders (and depositors who

concentrate large holdings in any one institution) willingly expose themselves to financial

risk, so should not be shielded from losses if a bank fails. But it raises the question, when

is a bank small enough to fail?

One rule of thumb might be when the systemic consequences of a failure are smaller

than the cost of a bail-out. In the case of Southsea this was clear. The Financial Services

Authority say Southseas only liabilities were to depositors. It had not issued bond debt.

Without bondholders, there was no systemic fallout from allowing the bank to fail. Indeed

Southseas collapse barely registered in the media or in the markets.

This may not be the case in Denmark. Yields on Danish bank bonds have risen since Denmark introduced its

burden-sharing bank resolution mechanism. Of course with two of Denmarks banks failing, this could simply

reflect nervousness about the countrys banking sector as a whole. But some Danish bankers think they are

paying a price for their governments speed of reformDenmark and Britain are two of the few European countries to introduce new resolution

regimes since the financial crisis. If bondholders anticipate better protection from

governments in other jurisdictions, at the margin they may prefer to hold the debt ofbanks in those jurisdictions. This makes it risky for one country to push ahead with

reform if others do not.

Governments across the world are committed to allowing banks to fail in the future.

Socialising bank losses is unpopular, and it creates moral hazard. However, when

national banking sectors remain fragile, imposing burden-sharing resolution regimes is

fraught with danger. Governments and regulators may chose safety first. Witness


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the ECBs continuing refusal to allow haircuts for the senior bondholders of Irish banks.

They, it seems, are definitely too big to fail.

Financial contagion

Fear of fear itself

Is this Europes Lehman moment?Jun 23rd 2011 | from the print edition

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CONTAGIOUS diseases are usually dealt with by isolating the patient, lest he infect

anyone else, and then by trying to treat the illness. Isolation is not always possible with

physical ailments; with financial ills, it almost never is. With the Greek government

perilously close to default, investors and policymakers are wondering whether European

banks have caught something nasty. Many are comparing the choices facing the euro


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zone and the IMF to those faced by the American Treasury and the Federal Reserve in

the days before Lehman Brothers collapsed in 2008, causing a seizure in the global

financial system.

The comparison is not exact. The Greek government owes more than 300 billion ($435

billion); Lehmans balance-sheet before its failure was $613 billion. The chief difference,

though, lies in complexity rather than in scale. Wall Streets fourth-largest investment

bank was at the centre of tens of thousands of interconnected trades that were hidden

from view and difficult to value. Its fall caused panic because others in the markets had

no way of knowing who the counterparties to its trades were and whether Lehman owed

them so much that they too might fail.

That ought not to be true of Greece. It has far fewer creditors: two-thirds of its debt is

probably held by about 30 institutions. And whereas Lehmans exposures were hidden

from public view, Greeces are largely out in the open and are also reasonably easy to

value. The more light has been shone into the dark vaults of banks holding Greek

government debt over the past year, the more markets have been reassured that few, if

any, foreign banks are dangerously exposed.

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Investment servicesy Investment bankingy Money marketsy European Central Bank

According to public data collected by Barclays Capital, an investment bank, few foreign

banks holdings of Greek government bonds are worth even 10% of their capital (Greek

banks are a different matter: see chart 1). That means they should comfortably

withstand the substantial losses that might arise if Greece said that it would repay less

than 100 cents on the euro. Softer forms of default, such as extending the maturit ies of


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existing bonds, would probably cause almost no harm to the financial system, especially

if the interest payments remained the same as when the bonds were issued.

Holdings of bonds do not tell the full story of banks exposure to Greek government deb t.

By buying credit-default swaps (CDSs), which are essentially insurance policies against a

default, banks are likely to have shifted some risk to insurers or investment funds that

are less important to the financial system as a whole. Some banks, however, will have

sold CDSs.

Across the entire financial system these CDS exposures largely net off, Barclays reckons,

and collateral and margin-calls should have reduced the outstanding exposures to

relatively small amounts. However, not everyone will end up with a net position close to

zero. It is reasonable to suppose that there would be some large losses (and some large

gains) on CDS contracts if Greece stopped paying its bills. Quite where these would

emerge is causing some worry in markets.

Bank regulators have made progress in publishing information on exposures. Banks

themselves have been giving quarterly or half-yearly updates on their ownership ofGreek bonds. But weaker banks have been the most reluctant to come clean: public data

on their holdings are a year out of date. Were panic to seize the banking system,

regulators could do much to restore calm by releasing information they have collected in

the past three months as part of stress tests of Europes banks.

Government bonds are not the only assets on which foreign banks could lose money in

Greece. Loans to Greek companies, made either directly or by their Greek subsidiaries,

might also go bad. Foreign insurers as well as banks might suffer contagion, because

they also own Greek government bonds. However, because Greeces insurance market is

relatively small, most foreign insurers would have correspondingly small amounts of

Greek debt.


troubled economies

The hard numbers alone thus suggest that a Greek default would do little lasting harm to

the rest of Europes financial system. Yet investors act on fear as well as figures. What is

more worrying for Europes policymakers is the thought that Greeces affliction would

spread not just to foreign banks but to foreign governments. Just as Lehmans collapse

told investors that a Wall Street bank could fail, a Greek default would tell them that a

Western government could renege on its debts: Greece would be the first developed

country to default for 60 years.


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The European Central Bank (ECB) opposes a restructuring of Greek debt partly because

of the risk that investors would then desert other troubled countries on the euro areas

periphery. At the very least, their bond yields, which have already been rising, would

climb further. They might also be pushed towards default.

First and second in line would be the next-wobbliest members of the euro zone: Ireland,

whose government has debts of around 150 billion, and Portugal, which owes 160

billion. Partly because they have also reduced their holdings of Irish and Portuguese

bonds, European banks should be able to cope if these countries joined Greece in defaultor in restructuring their debts. However, if contagion were to spread to Spain or Italy,

and banks had to accept losses on their governments bonds, the sums would look grim

even for some banks outside the affected countries (see chart 2). Italy owes 1.8 trillion,

or 120% of a far bigger GDP than Greeces, Irelands or Portugals. Spains debts amount

to 640 billion.

Another cause for unease is European banks reliance on short-term wholesale financing

from outside the continent. Fitch, a ratings agency, reckons that roughly half the cash

entrusted to big American money-market funds is lent on to European banks. This is

skittish money that can be gone in a trice.

Banks in vulnerable countries have already found money-market funding harder to come

by, or at least dearer. Huw van Steenis of Morgan Stanley notes that a year ago, when

European regulators last conducted stress tests, their adverse scenario assumed a fall

in retail banks earnings, before loan-loss provisions, of about 5%. Almost every

peripheral or southern European bank weve looked at underperformed [that] case,

because of a rise in the cost of wholesale funding and deposits. Spanish banks have been

turning increasingly to the ECB for funding, drawing 57 billion at the end of May

compared with 42 billion in March.


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Worse than jitters in the money markets would be a loss of faith by depositors. The Bank

of Greece thinks that in the first four months of the year Greek banks lost deposits at the

rate of 2.8 billion a month.

Kill or cure?

What might happen if Greece defaults depends largely on how policymakers behave: the

costs of contagion need not be big if panic does not take hold. The ECB could counter

money-market flight, for instance, by supplying more liquidity, as the Fed did after

Lehman crashed. It could also reopen the foreign-exchange swaps set up with the Fed

during the crisis.

Some good ideas are already being discussed. One is to conduct credible stress tests and

recapitalise banks that fail. On June 17th the IMF urged European regulators to speed up

recapitalisation, warning that there is still a tail of weak banks.

Another idea is to increase the capacity for providing liquidity to countries on the

periphery that seem solvent, yet risk being caught in the fallout from a Greek default. On

June 20th the European Union restructured its interim bail -out fund, increasing itslending capacity to 440 billion from an effective limit of 260 billion by getting France,

Germany and others to guarantee more of its debt. EU officials also encouraged the flow

of private credit to Ireland, Portugal and Greece by saying that the fund would not be

repaid before other lenders if debts were restructured.

Some policies, though, might cause trouble. The ECB has threatened not to accept Greek

government bonds as collateral if the countrys debt were restructured. If it carried out

that threat, a liquidity crisis in Greece, bank runs and other mayhem could ensue. It

would be almost like an act of war, says a senior executive at a Greek bank. I dont

think that theyd pull the plug.

Charlemagne

Default options

The euro zones leaders are seeing their political choices narrow

Jun 23rd 2011 | from the print edition

yy


20/28

EVANGELOS VENIZELOS is a big man, built more like a rugby forward than a bookish

finance minister. As the politician now charged with fixing Greeces broken finances, he

will need to muster all his strength. On his first outing to meet European colleagues in

Luxembourg this week he found himself like a prop pinned under a ruck, with studs

tearing into his flesh.

The inexperienced Mr Venizelos left himself dangerously exposed. He tried to reopen the

austerity and labour-reform package, particularly the pace of privatisation, that is a

condition for receiving more bail-out money and saving Greece from default. He

suggested the parliament might not meet a deadline to approve the measures by the end

of the month. Worst of all, Mr Venizelos insinuated that other Europeans had no choicebut to save his country because a default would be more painful for the euro zone than

for Greece. Boots and fists were soon flying.

Still, he had a point. For months now, the European Central Bank and European

Commission (and, more quietly, parts of the IMF and the Americans) have been urging

ministers not to entertain even a modest restructuring of Greek debt, let alone a full-

blown default, for fear of disastrous contagion. With signs of trouble s preading to other

countries, including Spain and Italy, the words Lehman Brothers are uttered ever more

often. The dilemma is summed up by Keyness adage: If I owe you a pound, I have a

problem; but if I owe you a million, the problem is yours.

Related topics

y European Uniony United Statesy International Monetary Fund (IMF)y World marketsy Financial markets

The assumption is still that the euro zone will somehow muddle through, at least for a

while. George Papandreou, the Greek prime minister, won a vote of confidence this


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week, raising hopes that his reform programme, perhaps with some tinkering, will be

approved by the end of the month. Euro-zone finance ministers are due to meet on July

3rd to endorse the next tranche of loans, worth 12 billion ($17 billion), followed days

later by approval from the IMF. Greece should then stagger on until September. These

days, European ministers are no longer trying to gain a few more years; a few months or

even weeks will do. They keep kicking the can down the road, but the can is getting

heavier, comments one high-level diplomat.

By autumn, euro-zone ministers expect to have finalised a second bail-out for Greece

that will protect it until 2014. At that point, claim the EUs and IMFs economists, Greece

will have returned to growth and reached a primary budget surplus (ie, it will raise more

revenue than it spends, before interest). Officials say repaying the vast debt will be

difficult but not impossible. They have to affect optimism: as they try to save Greece

from default today, they can hardly admit that it is sure to default tomorrow.

But even if ultimate salvation is possible, Greece could fall into plenty of immediate

traps. One is the mood at home, with almost daily mass protests outside parliament,

interspersed with riots. What if Mr Papandreou cannot get a majority for unpopularreforms? Another is the sternness of the IMF, which says it cannot release next months

tranche of money before it knows that the euro zone will fully fund Greece next year. A

third is the mood of creditor countries such as Germany, which have been insisting on a

substantial contribution by private bondholders. After much argument, this is now

supposed to be done voluntarily by rolling over the debt at maturity. But nobody really

knows how much room this can create.

All this is knotted up. Without sufficient private-sector help, some countries say they will

not give more money; without certainty about who pays for what, the IMF says it cannot

release the funds; without the IMF, the euro zone cannot pay either; and without more

tranches of help, Greece will default.

Even if Greece can be salvaged, attention is turning to the long-term survival of the euro.

To Eurosceptics, notably British ones, it should be given up as a bad job. The tragedy of

Greece is the inevitable outcome of EU leaders hubris in imposing a single currency and

a single interest rate on incompatible economies.

Disunited states ofEurope

For Euro-federalists, such as Guy Verhofstadt, a former Belgian prime minister, the

answer is to move towards a United States of Europe. Even an American such as John

Lipsky, the acting head of the IMF, called on Europeans to rediscover the dream of

integration. Jean-Claude Trichet, president of the ECB, says that one day there should be

a European finance ministry to co-ordinate fiscal policies. He argues that the euros

performance is comparable to that of the dollar and that growth per head, price stability

and even the extent of economic divergence are broadly similar in America and the euro

zone. Indeed, the euro zones aggregate deficit and debt levels are healthier than

Americas.

But the comparison is flawed. The euro zone is not a federal state. Its key decisions are

national, and hence agonisingly slow. Fiscal transfers within the EU are far smaller than


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in America, so cannot help countries absorb sudden shocks. For Germany, especially, the

idea of a transfer union is anathema. It is willing to transfer rules on fiscal discipline

and the labour reforms that helped it regain competitiveness. But the idea of closer fiscal

integration will not go away. The European Commission has promised to study how

countries might issue common Eurobonds.

Whether it is through tougher rules that shift economic powers to Brussels, or perhaps

one day a bigger fiscal union, the crisis is forcing the euro zone into more integration. As

one Eurocrat puts it, We are speleologists trapped in a tunnel. We cannot go backwards;

we can only go forward. But the risk is that, in trying to avert the break-up of the euro,

leaders will create a bigger political backlash, against both themselves and the EU. Mr

Venizelos knows it. His rescuers know it. That is why they have been at each others

throats.

Economist.com/blogs/charlemagne

The euro crisis

If Greece goes

The opportunity for Europes leaders to avoid disaster is shrinking fast

Jun 23rd 2011 | from the print edition

yy

THE European Union seems to have adopted a new rule: if a plan is not working, stick to

it. Despite the thousands protesting in Athens, despite the judders in the markets,

Europes leaders have a neat timetable to solve the euro zones problems. Next week

Greece is likely to pass a new austerity package. It will then get the next 12 billion ($17

billion) of its first 110 billion bail -out, which it needs by mid-July. Assuming the

Europeans agree on a face-saving voluntary participation by private creditors to please


23/28

the Germans, a second bail-out of some 100 billion will follow. This will keep the

country afloat through 2013, when a permanent euro-zone bail-out fund, the European

Stability Mechanism (ESM), will take effect. The euro will be saved and the world will

applaud.

Time to stop kicking the can

That is the hope that the EUs leaders, gathering in Brussels as The Economistwent to

press, want to cling to. But their strategy of denialrefusing to accept that Greece

cannot pay its debtshas become untenable, for three reasons.Related items

y Germany and the euro: Merkel's hazardous courseJun 23rd 2011y Greece and the euro: The brewing stormJun 23rd 2011y Financial contagion: Fear of fear itselfJun 23rd 2011

Related topics

y Economicsy Economic integrationy European economyy EU economyy Economies

First, the politics blocking a resolution of the euro crisis is becoming ever more toxic

(see article). Greeks see no relief at the end of their agonies. People are protesting daily

in Syntagma Square against austerity. The government scraped through a vote of

confidence this week; the main opposition party has committed itself to voting against

the austerity plan next week and a few members of the ruling Socialist party are also

doubtful about it. Meanwhile, German voters are aghast at the prospect of a second

Greek bail-out, which they think would merely tip more money down the plughole of a

country that is incapable either of repaying its debts or of reforming itself. As the climate

gets more poisonous and elections approach in France, Germany and Greece itself, therisk of a disastrous accidentanything from a disorderly default to a currency break-up

is growing.

Second, the markets are convinced that muddling through cannot work. Spreads on

Greek bonds over German bunds are eight points wider than a year ago. Traders know

that Greece, whose debts are equivalent to around 160% of its GDP, is insolvent. Private

investors are shying away from a place where default and devaluation seem imminent,

giving the economy little chance of growing. The longer restructuring is put off, the more

Greek debt will be owed to official lenders, whether other EU governments or the IMFso

the more taxpayers will eventually suffer.

The third objection to denial is that fears of contagion are growing, not receding. Earlyhopes that Greece alone might need a bail-out were dashed when Ireland and Portugal

also sought help. The euro zone has tried to draw a line around these three relatively

small economies. But the jitters of recent weeks have pushed Spain and even Italy back

into the markets sights again. The belief that big euro -zone countries could be protected

from attack has been disproved. Indeed, far from fears of contagion ebbing, the talk is of

a Greek default as a Lehman moment: like the investment banks bankruptcy in

September 2008, it might unexpectedly bring down many others and devastate the world

economy.


24/28


troubled economies

While the EUs leaders are trying to deny the need for default, a rising chorus is taking

the opposite line. Greece should embrace default, walk away from its debts, abandon the

euro and bring back the drachma (in a similar way to Britain leaving the gold standard in

1931 or Argentina dumping its currency board in 2001).

That option would be ruinous, both for Greece and for the EU. Even if capital controls

were brought in, some Greek banks would go bust. The new drachma would plummet,

making Greeces debt burden even more onerous. Inflation would take off as import

prices shot up and Greece had to print money to finance its deficit. The benefit from a

weaker currency would be small: Greeces exports make up a small slice of GDP. The

country would still need external finance, but who would lend to it? And the contagion

risk would be bigger than from restructuring alone: if Greece left, why not Portugal or

even Spain and Italy? If the euro zone were to break up it would put huge pressure on

the single market.

The third way

There is an alternative, for which this newspaper has long argued: an orderly

restructuring of Greeces debts, halving their value to around 80% of GDP. It would

hardly be a shock to the markets, which have long expected a default (an importantdifference from Lehman). The banks that still hold a big chunk of the bonds are in better

shape to absorb losses today than they were last year. Even if Greeces debts were cut in

half, the net loss would still represent an absorbable proportion of most European banks

capital.

An orderly restructuring would be risky. Doing it now would crystallise losses for banks

and taxpayers across Europe. Nor would it, by itself, right Greece. The countrys

economy is in deep recession and it is running a primary budget deficit (ie, before

interest payments). Even if Greece restructures its debt and embraces the reforms

demanded by the EU and IMF, it will need outside support for some years. That is bound

to bring more fiscal-policy control from Brussels, turning the euro zone into a morepolitically integrated club. Even if that need not mean a superstate with its own finance

ministry, the EUs leaders have not started to explain the likely ramifications of all this to

voters. But at least Greece and the markets would have a plan with a chance of working.

No matter what fictions they concoct this week, the euro zones leaders will sooner or

later face a choice between three options: massive transfers to Greece that would

infuriate other Europeans; a disorderly default that destabilises markets and threatens

the European project; or an orderly debt restructuring. This last option would entail a


25/28

long period of external support for Greece, greater political union and a debate about the

institutions Europe would then need. But it is the best way out for Greece and the euro.

That option will not be available for much longer. Europes leaders must grab it while

they can.

The euro crisis

Beware Eurosceptics bearing giftsJun 20th 2011, 22:27 by Bagehot

yy

HURRY up and die. Make no mistake, that is the sub-text of the messages being sent to

Greece by British Eurosceptic politicians, under the guise of sympathetic noises about

how Greece is being burdened with unpayable debts by a heartless Euro -elite.

At an emergency debate today in the House of Commons, several MPs shared their

confidence that the single currency is doomed in its current form. Jack Straw, the former

Labour foreign secretary, told Parliament:Instead of sheltering behind complacent language and weasel words that we should not speculate,

the Government should recognise that this eurozone cannot last. It is the responsibility of the

British Government to be open with the British people now about the alternative prospects. Since

the euro in its current form is going to collapse, is it not better that that happens quickly rather

than it dying a slow death?

Here is Richard Shepherd, a veteran Tory Eurosceptic MP:

Mr Richard Shepherd(Aldridge-Brownhills) (Con):The eurozone was never an optimal currency

zone. It is predicated on a treaty arrangement that calls it irrevocable and irreversible.We should

never have accepted the hubris contained in those phrases, which brought about the passage of

the Maastricht Bill and the current situation. This Government and this country should not be

involved, and it would be helpful if we said what everyone in the press now says: this arrangement

cannot survive in its current form. The hubris of those politicians who led the poor Greeks and all

those who believed in this arrangement should be exposed as such

Douglas Carswell, another Tory ultra when it comes to Europe, called on the government

to agree that the International Monetary Fund should oversee a Greek decoupling from

the euro, followed by a default on its debts. Another Conservative MP, Anne Maine, called

for Greece to be "put out of its misery", adding:

no more of our public money should be sent abroad to Greece, even through the IMF. There are

riots on its streets. Its people do not like the medicine being offered to it, and we cannot expect it

to take any more. Let it depart peacefully from the euro. It cannot be sustained as it is; it is just

good money after bad

Building on the "poor Greeks" line, the Tory mayor of London, Boris Johnson, chose the

euro crisis to remind his many fans among the Conservative grassroots that he is (a) a

classical scholar, (b) Eurosceptic and (c) more robustly right-wing that his party leader,

David Cameron. Writing in the Daily Telegraph, Mr Johnson declared this morning:


26/28

For years, European governments have been saying that it would be insane and inconceivable for a

country to leave the euro. But this second option is now all but inevitable, and the sooner it

happens the better. We have had the hamartia - the tragic flaw in the system that allowed high-

spending countries to free ride on low interest rates. We have had the hubris - the belief the good

times would never end. We have had nemesis - disaster. We now need the anagnorisis - the

moment of recognition that Greece would be better off in a state of Byronic liberation, forging a

new economic identity with a New Drachma. Then there will be catharsis, the experience of

purgation and relief.

I dont believe that Greece would be any worse off with a new currency. Look at what happened to

us after we left the ERM, or to the Latin American economies who abandoned the dollar peg. In

both cases, it was the route to cutting interest rates and export-led recovery

Enough with the phoney philhellenism. Read on, and you get to Mr Johnson's conclusion:

The euro has exacerbated the financial crisis by encouraging some countries to behave as

recklessly as the banks themselves. We are supposedly engaging in this bail-out system to protect

the banks, including our own. But as long as there is the fear of default, as long as the uncertaintycontinues, confidence will not return across the whole of Europe - and that is bad for the UK and

everyone else.

It is time for a resolution. And remember - if Greece defaults or leaves the euro, then we will not

see that UK cash again. Indeed, we are more likely to be repaid in stuffed vine leaves or olive oil

than we are in pounds or euros. We should stop chucking good money after bad

We are back with our old arguments about Britain having to guarantee bail-out funds for

euro-zone countries, in this case Greece via Britain's membership of the IMF (Britain is

not involved in a separate EU-organised series of loans from European governments to

Greece). The sceptics filled with sympathy for Greece and so excited about its prospects

with a new currency are in fact mostly worried about having to put "good" British money

into the "bad" eurozone.

To be fair to the sceptics, several of their contentions are correct.

Greece should not have been allowed to join the single currency. Even at the moment of

joining, I have been told by senior EU officials, other European governments did not

believe the Greek numbers purporting to show that they had met euro entry convergence

criteria. Letting them in was a purely political decision, with the disastrous economic

consequences we now see.

It is also clear that Greece has no chance of paying back the crushing burden of

sovereign debt that it already owes, and that offering Greece further bail-out funds is no

more than a ploy to kick the problem down the road, as European finance chiefs fret

about the potential losses to European banks, and politicians agonise over a set of

unpalatable choices.

Finally, it is true that the brutal austerity measures being imposed on Greece are choking

off growth, making it even less likely that the country can pay it own way out of this

crisis.


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Greece will end up defaulting on its debts in some form, and if that default is messy and

uncontrolled, there are scenarios in which the country could end up crashing out of the

single currency.

But where do British eurosceptics get their certainty that Greece would do well to crash

out of the euro as soon as possible? They talk cheerily about Greece bounding back to

health once it is freed from the straitjacket of the euro. Mr Johnson told television

cameras Greece stood to enjoy a nice export-led recovery once it started printing new

drachmas, triggering a rapid devaluation. "Bob's your uncle," he said. Other

commentators have talked about how Greece would be a nice, cheap holiday destination

once it used devalued drachmas.

But this cheeriness ignores some rather painful problems.

1. Greece is in a mess not simply because it borrowed too much. It is in a mess because

it spent a decade enjoying the easy life that came with low, Germanic interest rates, and

did more or less nothing to equip its economy or labour markets to compete with its new

currency-mates in the eurozone. Before the euro came along, Greece was a serialdevaluer of the drachma, but the effect was not to turn Greece into a lean, mean

competitive economy. The effect was years of painfully high inflation ( topping 20% at

several points in the 1970s, 1980s and 1990s), sky-high interest rates (routinely

reaching double-digits) and endlessly eroded savings. Put Greece back on the drachma

and its economy would still be a sclerotic, unreformed mess.

2. While it is true that each new bail-out is only postponing the evil day when Greece has

to restructure its sovereign debt, that does not mean that short-circuiting the whole

process and crashing out of the euro now would be to Greece's advantage. Even if

Greece were to declare it was not going to repay a penny and invite its international

creditors to whistle for their money (as some protestors in Athens urge) the country is

still broke.

Strip out interest payments on its national debts, and the Greek government is currently

running a hefty primary deficit: ie, it has to pay bills each week and month that are

larger than the tax revenues it is able to collect (Wolfgang Munchau has numbers in

today's FT). If Greece were to turn its back on its current arrangements with the EU, the

IMF and the euro-zone, and yank out the life support tubes that connect its banking

sector to the European Central Bank in Frankfurt, where would Greece get the money,

tomorrow or next week, to pay the salaries of policemen, firemen or teachers, or pay

pensions?

Re-read the British MPs quoted above, and it is pretty clear that (for all that the sceptics

yearn to be proved right in their contempt for the euro project), they have no intention of

lending Greece a single penny should that country burn its bridges with Brussels and

Frankfurt. The international capital markets are already effectively closed to Greece in

anticipation of a default, so calling on them for help would not be much use.

None of which is to say that Greece can avoid default at some point. Mr Munchau

suggests a rational Greek who hates austerity might like to wait a couple of years and


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then default, assuming the country is running a primary surplus by then. Others may

doubt that Greek belt-tightening will work by 2013.

I am making a simpler point, that there are no happy, Bob's Your Uncle solutions out

there, whatever British Eurosceptics pretend. Pretty much every option looks bad: the

British should not be blinded by thei r hostilty to the single currency into imagining that a

switch to drachmas would be a magic solution.

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