Sunday 4 December 2016

Pretence and delay will grind us to a halt

EU leaders have wasted time on a strategy which has been failing visibly for over a year, writes Colm McCarthy

Published 02/10/2011 | 05:00

The European crisis will continue to threaten the stability of the international financial system until it is addressed decisively. Three simultaneous announcements would bring the crisis to an end. These are debt relief for Greece through an orderly sovereign default; recapitalisation of European banks, including Greek banks, whose weakness will be further exposed by the realisation of losses on Greek bonds; and the bond markets of those countries likely to prove solvent, especially Italy and Spain, need to be given open-ended support by the European Central Bank for the duration of the current liquidity crunch.

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Greece is unable, barring some unimagined miracle, to meet its sovereign obligations.

The failure to acknowledge this back in May 2010 on the occasion of the first Greek bailout has extended rather than contained the sovereign debt crisis. When debts clearly exceed the payment capacity of debtors, the policy task is the allocation of the inevitable losses. Instead European policymakers have wasted a year-and-a-half pretending that losses on Greece could somehow be avoided.

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