In response to the package, the bond market has not changed its tune. The new 50% “haircut” to private sector investors in Greece hasn’t altered the conviction of traders that the troubles in Athens will inevitably be contagious. Pricing of Spanish, Italian and even French bonds reflect this pessimistic outlook.
Europe’s politicians are aware of what the markets have long known: Patches are destined to fail. But the urge to pass the hot potato without instituting meaningful structural change is, evidently, irresistible. So instead of muscular reforms, we see the same unsuccessful rescue packages supersized. Sunny optimism and mutual back-patting continue, paired with pep talks from the rescue fund controllers at the International Monetary Fund and the World Bank.
The latest steps don’t end the Greek crisis. A Eurozone-wide problem requires a Eurozone-wide solution. The European Central Bank should be creating something along the lines of the U.S. TARP program, buying bonds to calm the volatility until a bold, permanent solution is crafted. Greece and the rest of Europe would ultimately survive the disintegration of the Eurozone and the death of the euro. But the end of a unified Europe would leave the entire world poorer.
[blockquote] The European Central Bank should be creating something along the lines of the U.S. TARP program[/blockquote]
Because that worked so very well.
And why would “the end of a unified Europe leave the entire world poorer?”