This post is extracted from Michael Pettis' newsletter sent out a few weeks ago, at a time when the mood in Europe was much better than now and when there was even a sense that the crisis was in the process of being resolved. We mention this to remind readers of how quickly sentiment can change. Authored by Michael Pettis, originally posted at China Financial Markets,
Yves here. Our post today on Cyprus provides some broad background, including the political dynamics and the not-terribly-defensible reasons the Eurozone went that route, and a short discussion of the large risk that this inept move precipitates a wider crisis. This article by Charles Wyplosz serves as a companion, since it discusses the “tax,” um, expropriation option versus other alternatives. Even more important, it sketches out why this scheme, even if it manages not to kick off a crisis, is still inadequate to rescue Cyprus.
The bailout of Greece was bungled because it was an attempt to save the single currency rather than the debt-stricken country, according to a highly critical report by the International Monetary Fund.
The internal report on the handling of the Greek crisis has detailed a catalogue of errors, which led to the IMF breaking three out of four of its own rules relating to lending money to bankrupt countries.
In an effort to combat Europe’s lingering debt crisis, European financial institutions have created bailout funds worth hundreds of billions of euros. While these funds are largely designed to support large banks and national governments, the EU is also supporting smaller entities in the private sector through an ambitious microfinance initiative.
By Pater Tenebrarum:Apparently euro area leaders don't want to interrupt their planned August vacations this year. It seems possible that the bout of 'verbal intervention' courtesy of Mario Draghi last week was designed to buy them the desired vacation time.The new 'crunch time' for the euro area debt crisis is therefore September, or so they say:
Time to breathe a sigh of relief, with resolution of the Greek bailout? Not so fast. Greece is likely to need re-adjustments to its plan  Plenty of challenges remain in the eurozone; PIMCO's El-Erian says Portugal is next . In fact, as Jeffry Frieden and I argue, the resolution of the problems facing eurozone policymakers is likely to be contentious and prolonged.
Forex Playbook submits: With the next chapter of the Greek debt crisis soon to unfold in Athens, Greece, investor confidence in the eurozone is far from restored. Ahead of Friday’s revelation of SEC charges in the Goldman Sachs’ (GS) scandal, the euro was headed toward further declines while Greek bonds had been trading lower for the fourth consecutive day.