UK Telegraph | Eurozone Bail-out is Destined to Fail Within Weeks

So, the centre-piece of last week’s “package” is far less decisive   than meets the eye. It was, in fact, singularly indecisive. The hope that   Greece will clean-up its balance sheet autonomously now relies even more on   a privatization programme that is already laughably behind schedule. So the   moral hazard will go on, making it tougher still for the governments of   Portugal, Ireland and the other eurozone “peripheries” to sell to   their electorates the virtues of fiscal responsibility. These are not   clever-clever academic points. I’m pointing-out, quite simply, what the bond   markets will have noticed.

Having said all that, the prospect of “haircuts”, however   half-hearted, now looms over eurozone sovereign bond-holders, not least   fragile European banks. So Thursday’s announcement also stressed that the   €440bn (£386bn) euro European Financial Stability Facility would be “levered”,   allowing it to borrow to make it bigger. This is supposed to allow the   eurocrats to raise cash without having to trouble national parliaments,   given that they’re likely to refuse.

The question of who will lend to the EFSF, on whose collateral, and who will   ultimately repay the loans, was barely addressed last week. Such tricky   questions will apparently be answered at the next European summit in   December. Meanwhile, the fundamental disagreement between France and Germany   regarding who should take the biggest losses – eurozone governments or   private creditors – remains unresolved. Since Thursday’s announcement,   though, Germany’s powerful constitutional court has issued an injunction   requiring the country’s full Parliament to approve any EFSF bond-buying.

What is needed, urgently, is a clean, transparent Greek default – allowing   this flailing semi-developed economy to leave the eurozone, re-establish a   weaker drachma and regain its self-respect. Portugal should leave too, its   membership of the same currency bloc as Germany is as absurd, and   self-defeating, as that of Greece. There would be further market turmoil,   yes, but a few more months of volatility, leading to an ultimately more   stable outcome, is surely better than the current situation where the entire   world is living in fear of a massive “euroquake”.

The eurocrats, of course, lack the guts to trim back monetary union to a more   manageable size. Too much face would be lost. So “euroquake”   fears, once viewed as outlandish, are gaining pace. Despite Thursday’s deal,   and all the reassurances of a “durable solution”, the Italian   government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a   month ago and a euro-era high. Such borrowing costs are disastrous, given   that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A   default by Italy, the eurozone’s third-biggest economy, and the   eighth-largest on earth, would make Lehman look like a picnic.




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