Greek crisis puts Europe's currency under pressure
Published 21/03/2010 | 05:00
THE Greek financial crisis has turned deadly serious. With Germany unwilling to underwrite a rescue package, IMF intervention now looks inevitable. This will put the single currency under the greatest pressure in its 11-year history.
The apparent unwillingness of the other eurozone countries, particularly Germany, to agree a rescue package for Greece puts it in line to be the first member of the single currency to go cap in hand to the IMF, as it seeks to avoid defaulting on its €300bn debt.
Offloading the Greek problem onto the IMF might be the best short-term solution. While it would be the Washington-based organisation's first involvement with a eurozone country, the IMF is already overseeing bailout programmes in Hungary and Latvia, both EU members.
So why should Greece be any different?
Hang on a minute. While Hungary and Latvia have, up to now, maintained their euro pegs, is there an undercurrent of bitterness on the part of the Greeks in their dealings with the other eurozone countries, particularly Germany?
If Greece is spurned by the eurozone, what are the chances it will simply leave the euro and seek to restore its competitiveness through a lower exchange rate? Even if the Greeks meekly submit to an IMF-imposed austerity package, that won't be the end of the crisis. Far more likely is that, with the impotence of the eurozone having been exposed, the short-sellers shift their attention elsewhere? Spain and Portugal are the most likely next targets but don't rule out Italy or Ireland.
With Germany, which is terrified it will end up on the hook for the PIIGS's €3 trillion of debt, having made it clear it will not support a eurozone bailout of Greece, the essentially ad hoc nature of the single currency project is now plain to see. Even if Greece remains as a member, the likelihood of the eurozone surviving the current bout of turbulence intact has been drastically reduced.