Playing reckless games

Taken aback by the urgency of preventing a Greek default, which would lead to an unprecedented crisis in the system, the euro-zone finance ministers are desperately seeking a formula that would enable them to close the gap between those (such as the German government) who want obligatory participation by the private banks in a solution to the Greek debt problem, and those (such as the European Central Bank) who propose voluntary participation in the operation, considering that the damage caused to the private banking industry by a political imposition might finally ruin their already delicate balances.

The case is a serious one. Greece is at the brink of default, and any restructuring of the debt, such as the German government proposes, would be equivalent to non-payment with the consequent upset to the financial balance of the euro zone.

Thus, since Greece cannot be allowed to go bankrupt, there are really only two realistic options available to the European ministers. Either they agree on a new injection of money, in the order of some 90 billion, or organize a voluntary release, which would not generate a default classification. It seems inconceivable that the German government would insist on an obligatory release. Its obstinacy on this point clearly indicates that Merkel's governing team have lost their sense of reality.

It is unnecessary to harp on the cliché of attributing the German intransigence to electoral considerations. Even taking into account the cost in votes, Merkel and her finance minister, Wolfgang Schäuble, have to admit that playing the game of reticence, of putting things off, and of permanent tug-of-war with reality, is a very dangerous one because this game gradually deteriorates the financial credibility of other countries that count in the markets. Such as, for example, Spain.

The Spanish risk premium is extremely sensitive to the vicissitudes of the Greek crisis. Just as it will be sensitive in the future, if the situation is not straightened out, to the vicissitudes that affect Ireland and Portugal.

Spanish elections

Each backward step taken by Athens translates into a hike in the debt differential for Lisbon, Dublin and Madrid ? with the particularity that, when the markets calm down, this differential does not return to the level previous to the crisis, but sticks at higher levels. At the present rate, each week that the Greek case remains unresolved means from five to 10 points more of differential for Spain. If the uncertainty is further prolonged, the debt crisis may become one more factor of pressure in the case for obligatory early elections in Spain.

The German (and EU) authorities urgently need to reconsider and understand that the present model of bailouts has been a failure. Greece needs another aid plan, not only because its public accounts are disastrous and because fraud in the Social Security system has been proliferating, but because the loans so far conceded are onerous, the adjustment demands heavy, and the time limits set for deficit reduction peremptory. Bailout plans must also leave breathing room for recovery. In the contrary case, the peripheral countries of the euro zone are doomed to wallow in a perpetual financial crisis.