The French president arranges a private summit meeting with the German chancellor. Europe’s top central banker resists calls to allow Greece to write off some debt, fearing it could undermine the euro. The Greeks cry out that their sovereignty is infringed.
And only when markets teeter toward panic is a deal finally reached in Brussels to stave off more attacks on the euro zone’s vulnerable southern countries and prevent, for the moment at least, a broader run on financial markets.
The dramatic elements in the latest round of messy European compromise are not in themselves new. The question is whether the deal reached Thursday for another Greek bailout, this time valued at $157 billion, and relief for Portugal and Ireland is a decisive step to calm Europe’s financial storm or simply postpones another reckoning for the weakest southern European economies and the euro itself.
The consensus emerging is that European leaders went farther than ever before, crossing even their own red lines to shelter their decade-old currency. But many also worry that the intensive bargaining necessary to make an agreement possible resulted in a weak accord, saving face for all the key parties.
Jean Pisani-Ferry, director of Bruegel, an economic research institution in Brussels, said Thursday’s meeting “clarifies the horizon and pushes it forward.” But relief was not the same as solutions, Mr. Pisani-Ferry said, adding that he thought the private sector had not made enough concessions for the long run. Greece is almost sure to need further debt restructuring, he said.
The deal involved delicate compromises from all parties, especially Chancellor Angela Merkel of Germany and the European Central Bank. Each gave something and could claim a prize as well. The Europeans eased the burden on Greece, gave a modest bill to the private financial institutions and empowered a European-wide fund to act more broadly to buy up bad debt. The moves seemed to appease the markets, for now.
Babis Papadimitriou, an analyst for the Kathimerini newspaper in Greece, warned that its government had not shown great skill at putting into effect measures it had approved, including the opening up of closed professions and the privatization of over $70 billion in state assets.
The issues are political as much as economic. European democracy is fraught with the complications of 27 member nations, 17 of which use the euro, plus European institutions with shifting responsibilities. It was all on display in this crisis — internal German politics, the qualms of the European Central Bank, the plight of the Greeks and market anxieties over Italy and Spain, which are too big to bail out.
The biggest sticking point in reaching a broader accord to relieve Greece of some of its crippling burden of debt is Germany, where Mrs. Merkel has steadfastly resisted using European resources — meaning the wealth of Germany and other relatively prosperous members of the union — to write down Greek debt. Past bailouts provided new loans to Greece to help it pay off old ones, but ultimately just added to the country’s overall debt load.
But as markets swooned again this past week, pressure mounted in Germany. Even members of her own party attacked her with a ferocity unseen during the slowly unfolding crisis, saying she was jeopardizing European unity. President Obama called Mrs. Merkel on Tuesday to remind her how fragile the world financial system had become and of Germany’s responsibility.
Jean-Claude Trichet, president of the European Central Bank, was also pressed to consider steps he had previously insisted were impossible. On Wednesday, he called the bank’s 23-member governing council together in the bank’s high-rise headquarters in Frankfurt to discuss allowing the first default by a country that uses the euro.
Though staunchly opposed to compelling private banks to share the costs on Greece, which would mean at least a partial default in the eyes of bond rating agencies, the members of the bank council recognized that Germany was determined that any new bailout involve some pain for the private sector. But the council would insist on several conditions. European countries must guarantee Greek bonds so they will remain eligible as collateral for central bank lending. The bloc must support Greek banks and step up assistance for Greece’s economy.
Contributing reporting were Landon Thomas Jr. in London, Jack Ewing in Frankfurt, Stephen Castle in Brussels, Rachel Donadio in Rome, Judy Dempsey in Berlin and Niki Kitsantonis in Athens.
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