Decisive summit of finance ministers

A meeting crucial for the euro zone is now taking place. It would be an exaggeration to say that the survival of the single currency is at stake in this meeting, but obviously the credibility of the euro zone as a respected monetary area, capable of political initiative, depends on whether the euro-zone finance ministers convey a clear message on the second Greek bailout plan. This would send a message of calm about the debts of the other two current bailout-receiving countries (Ireland and Portugal), and for the economies of the two major southern European countries (Italy and Spain), who are having to pay the costs of EU indecision on Greece in the form of exorbitant risk premiums. The IMF has explained that further delay in the solution of the Greek crisis "is not an option."

Though Angela Merkel publicly maintains that the summit will not produce "a spectacular step" to solve the problems of Greece, she knows perfectly well that the euro faces hard times if there is not a clear message in the following terms: Greece will have a second bailout, probably with voluntary restructuring of the debt by private creditors, and this bailout will not be considered a default by the rating agencies. Germany is reluctant to accept the fact that Greece cannot pay its creditors, and that the only remaining way out is a restructuring without default. Whether this objective is achieved by means of agreed "haircuts" (accepting a partial write-off of the principal) or through a tax on the creditor banks, is a matter whose consequences the summit will have to assess; and it had better assess them well. But the vital step is to put out the fire that is scorching peripheral public debt. This can only be done by means of an agreement on the second (and presumably definitive) bailout of Athens.

Some previous reflection would be desirable on the existing model of bailouts, which, rather than saving countries, act as quicksand in which the rescued countries slowly sink. Europe has to advance toward real financial union, which lies in the creation of eurobonds, instead of postponing or complicating these decisions. Perhaps this is too much to ask of an urgent meeting. The minimum that can be demanded is a clear political and economic agreement on Greece. Without it, the stresses of the debt may bring on undesired political effects during the next few months, and a sharp worsening of economic conditions in the area.

While Berlin stands before the mirror rehearsing elegant orthodox postures and Merkel stubbornly repeats the refrain of "private haircut or nothing," the risk premium swells the financial costs of the countries involved in adjustment plans, as was evident in Tuesday's issuing of Spanish debt. The exorbitant increase of debt-servicing costs reduces budgetary margins and cripples economic growth. While dragging this ball and chain, it is hard to picture Spain achieving, or even approaching, a growth rate such as 1.5 percent by 2012.