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Commentary: Europe’s leaders have done nothing to prepare for the end
LONDON (MarketWatch) — The imminent Greek default is now the only issue that matters to the financial markets. The country is running out of money to pay its bills. It can no longer borrow on the markets. It has missed the deficit-reduction targets in the bailout package, and unless the euro area’s political leaders can come up with a fresh rescue package it will soon have no choice but to renege on it debts.
The only force that can avert catastrophe is that strange double-headed beast known to bond traders as Markozy — the French President Nicolas Sarkozy and the German Chancellor Angela Merkel. Neither shows any signs of getting to grips with the scale of the challenge they face, nor have they done so at any point since this drama started 18 months ago. Anyone staying in the markets now is taking a massive gamble that they suddenly get their act together over the next few weeks. They are almost certainly going to be disappointed.
There’s a snag, however. Europe is stuck with two incompetent leaders. Markozy have neither the authority nor the imagination to cope with the scale of the challenge they face.
The euro was not sold as a debt union, and it was never explained to the Germans and the French and the Dutch that they would end up having to pay the debts of Greece, Italy or Spain. In the 18 months since this crisis started, politicians have been in denial all along. If the euro was to be a fiscal union, the leaders of the continent should have started arguing for that two decades ago, when monetary union was first being planned. It is too late to start building the political support for a rescue package now
There have been nearly two years to come up with a plan for what happens if Greece goes down. All that has been put in place is the European Financial Stability Fund, and even that isn’t fully operational yet. Nor does it have anything like the funding in place to deal with the scale of the emergency it is likely to confront.
Bailing out Greece is only a short-term fix. So is a 50% default on its debts. It will get it through a few weeks or months but then it will have to come back for more money. In the medium term Greece will need to exit the euro, along with Portugal, and perhaps Spain and Italy as well. Again, it needn’t be a catastrophe for anyone. If you can create a monetary union, you can take it apart again. But there is no sign of anyone planning for that. The debate hasn’t even begun — and won’t until it is too late. All the politicians can suggest is throwing good money after bad — and not even very much good money at that.