Friday 16 September 2011

The quest for a "Polish"-Consensus?: sovereign debt crisis, Greek's problem/contagion and the future of the Euro-zone

Today the 17 ministers of Finance are gathered in Wroclaw, Poland, to dig out solutions for the (general) sovereign debt crisis while simultaneously having to deal with an urgent solution to the “Greek” problem (in terms of the most pressing financing needs). Vitor Constancio (ECB Board Member) told the press this morning that contagion to Portugal is always possible as long as the present (Greek) situation is not clarified (and resolved).(click here)
Such statement comes one day after both Merkel and Sarkozy have reaffirmed Greece’s place in the Monetary Union and reiterated their countries’ support to finding a solution that must prevent the country from abandoning the Euro-area. Timothy Geithner has also urged for a credible, coherent and quick Euro-zone response to the present conjuncture advocating that both the European Commission and the ECB still have several tools at their disposal. Despite these voices, Nouriel Roubini (Dr. “Doom”) published today an economic research piece in Roubini Global Economics entitled “Greece should default and abandon the Euro”. His views are that “Greece is insolvent, uncompetitive and stuck in an ever-deepening recession, exacerbated by harsh and excessive fiscal consolidation.” Some arguments are a bit too pushy, particularly when he compares the Greek with the Argentinean case. Portugal is also briefly mentioned (but not Ireland) with respect to some economic similarities shared with the Greek economy (such as the competitiveness issue) and the possibility of becoming the next “default” victim.
Irrespectively of who says what and where is the reason, the general public can, nevertheless, witness the absence of a unifying (and unique) “voice” in Europe as well as the lack of concrete plan of action to enforce…
Today’s article on the Economist, “Fighting for its life” (click here), suggests/asks for a greater role of the ECB, particularly given the growing financing difficulties of the banking system as a whole. Estimates from Goldman Sachs advert to the fact that Europe’s 38 largest banks may need between 30-92 billion euros in extra capital to cope with haircuts to Greek, Irish and Portuguese government bonds (as well as losses in Italian and Spanish government debt). IMF’s projections are even worse.
In face of increasing pressures from the financial markets, the 17 members may need to take measures to increase the scope and firepower of the European Financial Stability Facility (EFSF), Europe’s bailout fund. At the same time, the ongoing discussions about ECB’s willingness to buy without limit the bonds of solvent Euro-zone countries as well as the question regarding the issuing of Euro-bonds, does not seem to be heading towards generalized consensus. In the end, it is all about credibility and time (in-)consistency of policy-based (political?) actions.


  1. Is it legal to give access to the study cited in the post (the one from Roubini)? It is paid, even through american universities networks.

  2. Access is not being granted, as it is restricted to RGE subscribers (similarly to some articles in "The Economist" - not the case in the one cited). Only the article's title and a brief description of its content are mentioned and provided.