Eurozone Rescue Going Off the Rails
In the runup to the crisis, it was striking to read the undertone of worry in quite a few of the articles in the Financial Times, and I don’t mean only Gillian Tett’s fixation on collateralized debt obligations. It was palpable that a lot of writers were uncomfortable with how frothy the markets were, yet couldn’t say anything too much at odds with what their largely cheerleading sources were telling them.
Even though the overall mood at this juncture is far more downbeat, there is again a reporting gap between the pink paper and the two major US print business outlets, the Wall Street Journal and the New York Times on the expected crisis nexus, the Eurozone. Both US media outlets have a prominent article on the latest Euro exercise in rescue brinksmanship. And they are almost the same story; indeed, at this hour, they perversely use identical photos of Merkel and Sarkozy conferring. They present the formerly aligned core nation leaders as being at odds, then widen the frame to explain the divisive issues. First,, the Germans want a deeper but voluntary haircut of at most 50% of Greek debt; the French do not want to go beyond the 21% reduction structured last July. The steeper writeoff would, of course, lead to a bigger hit to French banks. Second France (effectively) wants the ECB to provide further leverage to the EFSF directly, while Germany and the ECB itself are decidedly opposed (Germany wants individual states to be responsible for their banks, with the ECB acting as a guarantor). The Journal was thinner on details and focused on the hardening political stances, not just between France and Germany, but other states as well. Per the Journal:
People familiar with the negotiations said Germany and France remain so far apart on key issues that Ms. Merkel couldn’t get a green light to sign a deal from her increasingly assertive parliamentarians.If you rated these articles as sobering, the far more detailed coverage at the Financial Times has an undertone of despair. And one story emphasizes an issue absent from the times and mentioned only in passing in the Journal: the experiment in Greece in radical austerity is killing the patient. From the Financial Times:
Greece’s economy has deteriorated so severely in the last three months that international lenders would have to find €252bn in bail-out loans through the end of the decade unless Greek bondholders are forced to accept severe cuts in their debt repayments.
The dire analysis, contained in a “strictly confidential” report by international lenders and obtained by the Financial Times, is more than double the €109bn in European Union and International Monetary Fund aid agreed just three months ago.
Under a more severe test run by economists for the so-called “troika” of lenders – the IMF, European Central Bank and European Commission – Greece’s bail-out needs could balloon to €444bn, the study said.