The Greek crisis and the future of the Eurozone

By: Paul De Grauwe

Sorting out the Greek crisis remains the absolute priority in the short-term.

Greek Competitiveness Is Not the Issue, Fiscal Discipline Is

By: Erik Jones

The simple fact of the matter is that Greece is having a fiscal crisis. It would have had that crisis whether or not it was in the eurozone.

Europe in Dire Straits – don’t be Brothers in Arms.

By: Henrik Enderlein

The case against bailing out Greece.

How should the Eurozone handle Greece?

The political pros and cons for no support, a European rescue and a call for the IMF.

The Euro Area's political constraints

By: Wolfgang Münchau

Not all policy solutions are possible in a monetary union. There are severely constitutional constraints.

When Does It Hurt?

By: Ansgar Belke

The exchange rate “pain threshold” for German exports is at $1.55 to the euro.

Fiscal policy in Central and Eastern Europe

By: John Lewis

Countercyclical but deteriorating with EU membership.

The problems with the Schäuble proposal

By: Wolfgang Münchau

The real bullet is not the EMF, but the exit clause, which could become a self-fulfilling prophecy.

Eurozone Meltdown

This is the first in a new series of regular briefing notes on important issues facing the euro area. In this briefing note we are asking whether the euro area could ever break up. We think not. But we are not as certain as we used to be.

Merkel says Nein to Greece: IMF option now almost inevitable

Germany says it prefers an IMF solution for Greece, as a bailout would contravene Germany’s constitution; decision attracted strong criticisms, and a fierce market reaction, as the euro faltered, as Greek yields went up; eurozone deeply split on the issue; Papandreou says he needs a definitive agreement by next week’s European summit, or else he will go to the IMF; there is much speculation on why Germany takes this position: a gambit to force a strengthening of the stability pact? Elections in North-Rhine Westphalia? Or genuine concerns about the German constitutional court’s likely reaction to a bail out? FT Lex column predicts an old-fashioned emerging market debt crisis for the eurozone; the European Parliament, meanwhile, is determined to push ahead with legislation to force banks to increase their capital.

More evidence that there is no bailout deal

Germany wants Greece to go the IMF; as bailout plans get more concrete, and more imminent, Germany is now trying to wiggle out of its promises of support; CDU’s Meister says only IMF has the know-how how to handle such a situation; Merkel says Greeks have to solve their own problems; European Commission warns eight member states that their GDP growth assumptions are too optimistic; Strauss-Kahn says a Tobin tax is unrealistic as it can be circumvented by the use of derivates; Jean Quatremer says Zapatero helped Brown on hedge funds because of the forthcoming UK elections; Ralph Atkins says Axel Weber may be too outspoken to be acceptable as an ECB president; Wolfgang Schauble, meanwhile, has had another great idea: he now wants to use Germany’s intelligence service to track down hedge funds.

There was no Greek bailout deal on Monday – eurogroup statement was essentially a lie

Germany continues to oppose an agreement; expects no deal at the summit either; Germany, Italy, Finland, and the Netherlands insist on IMF involvement; Germany is also cautious about granting loans, and specifically opposed to a credit pool, as this would violate the No Bail out rule, as well as domestic law; Zapatero listens to Brown and postpones a vote on hedge funds; Martin Feldstein says the Greek austerity plan will fail, prompting the country to leave the eurozone; Charles Dumas says Germany has been one of the most dismal economic performers, and is now exporting its low growth; Lawrence Boone says the falling euro will benefit Germany more than anyone else in the euro area, and worsen the imbalances; Martin Wolf, meanwhile, has coined a new term for the world’s two most notorious current account surplus countries: Chermany.

The deal is done – or is it?

Finance ministers announce that they have agreed on a package for Greece - except that all the details have yet to be worked out; what seems to have been agreed that any aid, should it be necessary, would come in the form of loans, not loan guarantees; ministers pretend that aid will probably not be needed; rating agency S&P expresses concern about the impact of the recession on Spanish banks; German official react furiously at Christine Lagarde’s criticism of Germany’s current current account surplus; Daniel Gros says Greece faces the choice between a long recession or a one-big large internal devalution; Lorenzo Bini-Smaghi comes out in favour of explicit bailout rules.

€55bn for a Greek bailout

Behind the scenes, the EU is working out the technical details for a Greek bailout; Berlin and Paris agree that Greece might need €55bn for bailout; Germany could be ready to contribute €20bn, preferably in forms of guarantees and purchases through KfW; First intervention might happen around Easter; Meanwhile, Germany promotes the EMF as a way to strengthening the stability pact and legalise euro exit; Huge disruptions through strikes against austerity measures in Greece; ECB critisises Spain over lack of concrete proposals to reduce deficit; Spanish banks are getting nervous about the failure to restructure the savings bank sector in Spain; conflicting new about whether the EU might be ready to use qualified majority to overrule British objections against hedge fund regulations; Critics, especially in the UK, say the current proposal is potentially protectionist; The EP has co-decision, and there are 1700 amendments already on the table.