The Duck of Minerva

Anyone have any old drachmas?

29 April 2010

Is this the end of the grand Eurozone experiment? I have to admit that I’ve had a general feeling for the past couple of months that the Germans would, in the end, cough up a bail-out package for Greece because of a sense that there is no real alternative. But, despite the fact that Angela Merkel finally appears to be asserting herself, now I’m really not sure how it will end. Rumors are swirling that Portugal and Spain will also need bailouts to meet excessive debt burdens after their debt ratings were downgraded. And, although Spain is looking more at a current liquidity problem than insolvency like Greece, this won’t matter to German parliamentarians who already can’t stomach bailing out Greece and ultimately bankrolling Greece’s inefficient and corrupt public sector and generous pension system. On top of all of that, German state elections in North Rhine-Westphalia on May 9 will be a free for all if the Bundestag passes a bailout.

So, we are left waiting on the Germans, the terms of an IMF bailout package, and/or whether or not the Greeks will entertain some form of debt restructuring, abandon the Euro, or default. None of these are particularly palatable and given the tensions between the European Central Bank and the IMF as well as the domestic political situations in both Germany and Greece, there are going to be some big losers before this all gets resolved. Things really don’t look good for the current Eurozone — either in the short-term or the long-run. Mlada was right, IPE is really interesting again….