POROS, Greece (Reuters) – Seen from Greece, there is something faintly surreal about watching European authorities and banks trying and failing to work out how to involve private sector bondholders in another rescue of Athens.
The damage this wrangling is causing to the euro zone’s credibility appears out of all proportion to the money it might raise towards funding the bloc’s most distressed debtor.
Just when Greece hoped for breathing space after adopting a new five-year austerity plan despite fierce street protests, acrimonious talks on making private bondholders pay have wrecked any honeymoon.
Markets have taken fright. The borrowing costs of hitherto “safe” euro zone countries such as Spain and Italy are rising, and depositors are pulling funds out of Greek banks in growing numbers.
To assuage domestic political interest groups, especially in Germany, Europe is fiddling while Athens burns.