While the Greek "compromise" deal may have averted an outright economic collapse in Greece in the short-term (although one would be hard pressed to describe the current situation on the ground as anything other than a depression) and may for the time being allow EU officials to cling to the notion that the euro is "indissoluble," the fraught negotiations that took place over the weekend in Brussels laid bare for all to see the unbridgeable gap between EMU nations.
The Greek drama is approaching the long awaited climax. An emergency heads of state summit will be held on Monday, followed by the regularly scheduled summit later in the week. At the same time, the banking crisis threatens to eclipse the sovereign crisis in terms of urgency. The accelerated flight of deposits from Greek banks, and the two extensions of ELA lending last week warn of the untenable status quo. Without that extension of ELA lending before the weekend, an ECB official expressed concern that Greek banks might not be able to open on Monday
Brussels (AFP) - Greece's eurozone future was on the line Tuesday as international creditors scrutinised a list of reforms to see if Athens has done enough to deserve an extension to its bailout programme.
ATHENS/BRUSSELS — A new Greek offer for a cash-for-reforms deal raised hopes of an agreement as euro zone leaders prepared for an emergency summit on Monday, with EU officials welcoming the proposals as a “good basis for progress” to avert a default by Athens.
European shares surged and the Greek stock market jumped nearly 7 per cent on hopes that the government could finally end months of wrangling that have left the country on the verge of bankruptcy and possibly being pushed out of the euro bloc.
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.