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An elderly man feeds pigeons on Syntagma Square on November 3, 2011 in Athens, Greece. Greece stands on the brink of economice collapse as political disagreements continue concerning the financial aid package proposed by the EU.
At this point, the Greek debt crisis probably seems like it's been going on forever. It hasn't, but it seems to defy resolution. Last Friday, the country finally defaulted, in a strictly technical sense, on part of its sovereign debt — an outstanding slice of private bondholder debt that was insured by the dreaded credit default swaps. The agency that determines whether those swaps — which amount to a bet that a country won't be able to keep up with its bond payments — should pay out said, "Yep, Greece has defaulted." Felix Salmon and John Carney provided a good explanation on Marketplace at the end of last week.
The main issue for Greece is just how long it's going to have to suffer. The austerity measures that are being forced upon it in exchange for more bailout money from the European financial authorities are setting it up for a decade of pain. On the plus side, Greece stays in the eurozone and has access to financing through the currency union; something can always be worked out...however...s-l-o-w-l-y. On the minus side...well, there's all that austerity and aforementioned pain.
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ATHENS, GREECE - NOVEMBER 03: A general view of the building of the Greek Parliament on the Syntagma (Constitution) Square is pictured on November 03, 2011 in Athens, Greece.
I've been steering clear of the euro crisis for the past month or so, but given the latest frenzied spate of negotiations about how to prevent Greece from defaulting on its debt, I figured it was time to jump back in. The latest news is pretty straightforward: over the weekend, the Greek parliament voted to accept a new set of austerity measures, in exchange for a new round of bailout money — $171 billion, roughly.
This hasn't gone down well with the population, according the the New York Times:
[C]haos on the streets of Athens, where more than 80,000 people turned out to protest on Sunday, and in other cities across Greece reflected a growing dread — certainly among Greeks, but also among economists and perhaps even European officials — that the sharp belt-tightening and the bailout money it brings will still not be enough to keep the country from going over a precipice.
Angry protesters in the capital threw rocks at the police, who fired back with tear gas. After nightfall, demonstrators threw Molotov cocktails, setting fire to more than 40 buildings, including a historic theater in downtown Athens, the worst damage in the city since May 2010, when three people were killed when protesters firebombed a bank. There were clashes in Salonika in the north, Patra in the west, Volos in central Greece, and on the islands of Crete and Corfu.
Greece and its foreign lenders are locked in a dangerous brinkmanship over the future of the nation and the euro. Until recently, a Greek default and exit from the euro zone was seen as unthinkable. [my emphasis] Now, though experts say that the European Union is not prepared for a default and does not want one, the dynamic has shifted from trying to save Greece to trying to contain the damage if it turns out to be unsalvageable.
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German Chancellor Angela Merkel (L) and French President Nicolas Sarkozy (R) give a press conference after a working lunch at the Elysee palace on December 05, 2011 in Paris. France and Germany want summits of leaders of eurozone states to be held 'every month, as long as the crisis lasts,' Sarkozy said.
UPDATE: Well, that was brief! Reuters is reporting that S&P is back in sovereign-credit-downgrade mode. The agency has threatened to pull an America on the six eurozone countries currently in possession of an AAA rating — including France and Germany. We'll see how long this rally holds.
The latest surge in hope the Europe will be able to manage its debt crisis has caused the markets to rally over the past few trading sessions. However, the latest kinda sorta deal also reveals the schizophrenic situation that Germany keeps backing itself into.
On the one hand, Germany doesn't want to throw its weight behind a plan to make the eurozone work more like the U.S., where the Federal Reserve can function as the (nearly) undisputed central authority on matters monetary. On the other hand, Germany wants to call the shots of fiscal issues, compelling everyone else to act more like...Germany!
My continuing effort to track the eurozone crisis via Storify continues. And the outlook for the single currency just gets worse and worse. Greece, Italy, and Spain have joined Ireland and Portugal in the basket-case category. France is under threat as its borrowing costs rise, and now even Germany is having trouble getting investors to buy its bonds.
On the plus side, I think we're running out of countries in Europe to see infected by this.
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The European currency Euro logo stands in front of the European Central Bank (ECB) in Frankfurt/M., western Germany on August 4, 2011.
Greek gets a new government. Italy will soon get a government. And still the markets aren't calmed. The Dow flirted with a 400-point drop all day before closing at minus-389. Meanwhile, German Chancellor Angela Merkel and French President Nicolas Sarkozy have finally just come out and said it: There should be two Europes — one run by...Germany and France, with the Euro as its currency; the other limping along with whatever's left in the Franco-German wake.
For critics of the Euro — and there have been plenty since the single currency was introduced in the 1990s — this is an "it's about time" moment. But even relative supporters are yelling surrender. At the Financial Times, Martin Wolf throws up his hands:
Will the eurozone survive? The leaders of France and Germany have now raised this question... If policymakers had understood two decades ago what they know now, they would never have launched the single currency. Only fear of the consequences of a break-up is now keeping it together. The question is whether that will be enough. I suspect the answer is, no.