Wolfgang Munchau, co-founder and president of Eurointelligence, has raised an uncomfortable prospect for investors in Greece. In a Financial Times column today, the long-time Europe commentator argues that Brussels may not be willing to bail Greece out if it were to default on its debt à la all-but sovereign Dubai World is about to.
The EU’s authorities, rightly or wrongly, are more afraid of the moral hazard of a bail-out than the possible spillover effect of a hypothetical Greek default to other eurozone countries. If faced with a choice between preserving the integrity of the stability pact and the integrity of Greece, they are currently minded to choose the former.
Munchau reckons that outright default is unlikely, but wonders whether the current spread between Greek and benchmark German bonds really reflects the risk that investors are taking. It is currently around 178 basis points after recovering from a blow out on Dubai worries last week.
The overriding problem is that consecutive Greek governments have been unable to force through the kinds of reforms that Europe and others have long called for and which being a euro zone member really entails.
Even when Greece qualified for the euro zone back in 2000, it was said that it had made it without having to take the harsh steps other had. Promises were made, but when it comes to austerity, the Greek public won’t hear of it. Greeks take to the streets with a speed and passion that makes French unions look positively Thatcherite.