A Greek deal – the end of the eurozone crisis?
21st February 2012 by Guntram B. Wolff
After a long night of discussions, the eurogroup agreed on a new deal for Greece. The main elements consist of a larger contribution of the private sector and a larger contribution of the public sector with the aim to bring back Greece debt on a sustainable path... Read more
The Greek tragedy: what next?
14th February 2012 by Zsolt Darvas
I 
was always sceptical about the relief that a voluntary private sector involvement (PSI) may bring and argued for an orderly debt restructuring as a part of a comprehensive solution, which should include proper provisions for Greek banks, as you also argue, and for banks of other euro-area countries, better European safety nets and a growth programme. In this sense we have converged.
There are two major points of disagreement between us. One relates to need for haircut for official lending and the other relates to the consequences of a Greek default and the call for capital controls... Read more
ECB preparation for Greek default
13th February 2012 by Guntram B. Wolff
My colleague Shahin has just posted a blog entry in which he argues that the broad framework of European Financial safety nets is in place and will not improve very meaningfully after the ESM is ratified. Therefore, time may have come to let Greece default. However, he is concerned that the ECB will not agree to do so because of lack of preparation for what would be needed. In particular, he argues that to preserve the integrity of monetary union, the ECB will either have to expand the ELA and let Target 2 balances rise substantially more. Alternatively, if it refuses to do so, in anticipation or in response to a euro area exit, it may become necessary to impose capital controls to prevent capital flights from the other peripheral countries... Read more
The Weekender
13th February 2012 by Shahin Vallée
The writing of this weekender has been the occasion of a number of internal debates and disagreements with other colleagues at Bruegel. I have to stress once more that the views herein are mine and that they are not those of Bruegel as an institution and that they do not reflect those of my fellow researcher here. I hope nonetheless that they will provoke some debate with our community and stir some ideas for future research.
It is another of those weekends filled with uncertainty. The relief provided by the agreement between Greek political leaders is likely to be very short lived because despite the extraordinary goodwill of the Greek political leadership, very few people believe that this deal and its likely weak implementation can return Greece to solvency.
But financial markets need to wake up to other sorts of risk. Tension in Syria is escalating in a way that makes intervention inevitable (despite Russian and Chinese veto in the security council). This will question further the role of Turkey in this fragile regional equilibrium. In addition, the risks of an Israeli strike on Iran have increased substantially in the last few months. Such an event would most probably be far more devastating for the global recovery than a Greek default... Read more
The ten roots of the euro crisis
11th January 2012 by Zsolt Darvas
On 9 December 2011 euro-area leaders once again gathered in an attempt to find a comprehensive solution for the euro-area sovereign debt and banking problems – but once again they failed to convince markets. Why is it so hard to overcome the current crisis?... Read more
Should we go back on Greek PSI?
10th January 2012 by Guntram B. Wolff
This op-ed by Guntram Wolff provides an analysis of Athanasios Orphanides' argument that the eurozone should jettison the deal reached on Greece and abandon the Greek private sector involvement (PSI)... Read more
Will the euro survive 2012?
18th November 2011 by Zsolt Darvas
With the rise of the government bond spread to Germany of AAA-rated euro-area members (Austria, Finland, France and the Netherlands), the euro crisis has moved to a new stage. The issue now is not just if Greece will default, but if there will be a chain of government defaults in several countries and a consequent meltdown of the euro-area financial system, including in Germany... Read more
Greece after the referendum
3rd November 2011 by Zsolt Darvas
Prime Minister George Papandreou’s call for a referendum on the new European Union bailout deal took almost everyone by surprise. Policymakers are holding emergency meetings, markets are falling and commentators are envisioning not just the departure of Greece from the euro area and possibly from the EU, but a collapse of the single currency as well... Read more
The Greek demos vs. the Greek demons
3rd November 2011 by Shahin Vallée, Guntram B. Wolff
There is something natural in the return of democracy to its European cradle. But Prime Minister Papandreou caught every one by surprise by announcing a referendum on the last programme that had just been negotiated a few days earlier in a marathon summit in Brussels. The eruption of politics in what was seen by the Europeans as a fairly technocratic process was bound to happen sooner or later. European democracies cannot be expected to make fundamental choices without the full legitimate backing of their own people... Read more
The Greek public debt misery: the right cure should follow the right diagnosis
26th October 2011 by Zsolt Darvas
In sharp contrast to the cautiously positive tone of the 11 October official press release about the fifth review of the Greek programme, the leaked confidential debt sustainability analysis by the troika of the European Commission, European Central Bank and International Monetary Fund (dated 21 October) was devastating, projecting Greek public debt (net of collateral required for private sector involvement) to peak at 186 percent of GDP in 2013 and to stay above 150 percent even in 2020. Market access is unlikely to be restored before 2021. Therefore, without a more sizeable reduction in privately-held debt, official financing would reach € 362 billion by 2020. And this is the baseline. Lower growth, primary budget surplus or privatisation revenues could make debt dynamics even worse... Read more
Greece: quo vadis?
16th September 2011 by Zsolt Darvas
German Vice-Chancellor and Economics Minister Philipp Rösler broke a long period of silence about a possible Greek default by saying that all options are to be considered.
Several finance ministries in the eurozone started to assess its implications. The 'troika' -- the delegation composed of the IMF, European Commission and European Central Bank officials -- has recently left Athens without an agreement... Read more
Can the sun save Greece?
11th August 2011 by Georg Zachmann
German Finance Minister Wolfgang Schäuble has proposed that developing green-energy resources could be a good way for Greece to generate much-needed economic growth. On paper, it sounds like a perfect solution to the country’s dire fiscal problems: Greece, according to Schäuble, could export solar electricity to Germany... Read more
Europe must intervene to get Greece growing
27th July 2011 by Jean Pisani-Ferry, Benedicta Marzinotto, Guntram B. Wolff
European leaders have called for a comprehensive strategy for growth and investment in Greece and a task force will be appointed to set out the details of how European Union structural funds could be used to that end. We had floated such ideas in February. Here is what the EU should do... Read more
'Debt socialisation' might follow Greek crisis
29th June 2011 by Zsolt Darvas
Europe can breathe a little more easily after the Greek Parliament’s vote in favour of the austerity bill yesterday. Talks on a voluntary rollover of Greek public debt by private lenders are ongoing. But can we sit back and have more confidence that the euro-area sovereign debt crisis will be resolved? Unfortunately not.
The Greek vote was necessary to avoid an immediate crash and it was a wise decision. It complements the Greek government’s heroic efforts to keep control of public finances and introduce growth-enhancing structural reforms.. Read more
