Greece gets help, but debt quicksand is all around
After five months of struggling to stay afloat in the quicksand of a debt crisis, Greece has finally asked the European Union and the IMF to throw it a lifeline.
Some might think that’s the end of it — Greece now has access to up to 45 billion euros in special funds, it can finance its deficit and refinance its debts at better rates, and speculators (who have metaphorically been stepping on Greece’s head while it thrashes around in the quicksand) have to beat a retreat.
But not so fast. Greece is just one link in the chain of 16 countries using the euro single currency. As such — and under the terms of the rescue package the euro zone agreed for Greece this month — the 15 others share a part in hauling Athens out of its predicament.
While Germany, France, Sweden and the Netherlands may have the financial strength to do that, other euro participants are far weedier and are already up to their knees or ankles in quagmires of their own. In the playground-bullying that is often the driving mentality of financial markets, this is just the sort of situation where speculators start pressing down on the heads of some of the other countries wading in debt. And there are quite a few candidates to choose from.
Portugal, Spain, Italy and Ireland have all already been mentioned as potential targets for speculators/investors who are ready to short their bonds and buy debt insurance (in the expectation that credit default swap prices will rise) . Belgium now too is on the radar screen. With a government that has just collapsed, debts of more than 100 percent of gross domestic product and a deficit that more than quadrupled in 2009 from 2008, it has several ingredients that could make it susceptible.
This is not the way Germany, the linchpin of financial-crisis decision-making in the euro zone, would have wanted things to go.
When it first became clear early this year that Greece was in trouble, the European Commission and euro zone members talked boldly about how ready they were to step in and help if needed, mostly in the hope that by sounding strong and confident, it would dissuade financial market speculators from piling further pressure on Greece. Instead, the markets called their bluff and the euro zone was eventually forced to show exactly how much it was prepared to put on the line to help Greece.
Now that the markets (broadly speaking) have called the shots and effectively won, it seems unlikely that they would give up there.
The question is how much appetite — not to mention financial capability — the euro zone has to haul another one of its members out of the quicksand should they start sinking more rapidly into it.