Europe desperately needs to get out in front of its solvency problem, Greek edition; not because it is right, not even because it will work in the long term, but to stem rapid and costly contagion through financial markets to other weak links in the euro zone, not least to banks.
Whether euro zone institutions will have the agility and resolve to quickly put in place out-sized measures for Greece is doubtful.
That Greece on Wednesday was paying more than 20 percent, or about double the rate of Hugo Chavez’s Venezuela, to borrow money for two years showed that investors were expecting either a default or very large burden sharing by existing creditors, and possibly a, by definition, disorderly exit from the euro by Greece. Spain joined the list of sovereign downgrades, as Standard & Poor’s cut its rating a notch to AA, a day after the debt rating agency slashed Greece to junk status and cut Portugal to AA.
The moves prompted rapid widening of Spanish and Portuguese debt, and hit financial markets world-wide. Investors, lulled by an apparently miraculous government-underwritten escape from the banking crisis, and aware of how badly things would go if Greece were not bailed out, had been operating on a cheerful if lazy assumption that this crisis too would be made to disappear, because the alternative is too horrible.
Month has followed month, meeting has piled upon meeting and even with broad consensus there is still huge lack of clarity about who in the European Union is going to do what exactly to whom.