Europe has left Greece hanging in the wind

However you dress it, the Greek package agreed by EU leaders is a capitulation to German-Dutch demands. There will be no European debt union as long as Angela Merkel remains Iron Chancellor of Germany.

By Ambrose Evans-Pritchard
Published: 8:48PM BST 28 Mar 2010

Comments 61


German Chancellor Angela Merkel and French President Nicolas Sarkozy at the Brussels summit on Greece on March 25, 2010. Sarkozy has been less keen on the IMF's involvement.

The Frankfurter Allgemeine summed up the deal succinctly: "No member of Europe's monetary union should be liable for the debts of another state. Bilateral credit from Berlin for Athens is not the same as German acceptance of responsibility for Greek debt."

This shatters the assumption since Maastricht that monetary union leads inexorably to fiscal union. By drawing the IMF into Euroland's affairs, Germany has broken the spell and reduced EMU to a fixed-exchange system with knobs on, like the 1930s Gold Standard that it so resembles. No wonder Jean-Claude Trichet at the European Central Bank is cross.

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Far from stemming contagion, the deal leaves Club Med exposed. Underlying default risk has risen for Greece, Portugal, Italy and Spain, as well as for Ireland, Slovakia and Malta even if credit markets keep missing the point. The world's top holder of EU debt does understand. Greece is the "tip of the iceberg", said the deputy-governor of China's central bank. "The main concern today, obviously, is Spain and Italy."

The 'rescue' resolves nothing for Greece, either short-term or long-term. The EU statement said "no decision has been taken to activate the mechanism." Precisely. The joint EU-IMF facility can be activated only ultima ratio – as a last resort – once Greece is shut out of debt markets and not until eurozone stability is threatened.

“So they want Greece to reach the point of bankruptcy before they help us?â€