20 MAY 2011
The restructuring of debt offers Europe an alternative to endless, ineffective hand-outs.
By Jeremy Warner | The Telegraph
Slowly but surely, Europe is coming round to the idea of sovereign debt restructuring – an inevitability that has long been apparent to markets, but which the EU has until now steadfastly refused to contemplate. In the upside-down world of Europe’s policy elite, this counts as progress.
Greece is clearly insolvent. It long ago passed the point where its fiscal difficulties could be reasonably defined as a temporary liquidity crisis. The longer Europe waits to acknowledge this reality, the more serious the problem will become.
Yet under Dominique Strauss-Kahn, the former head of the IMF, the presiding policy has been one of repeated bail-outs, an approach which enshrines a fiscal transfer union in all but name. That consensus is now breaking down.
Nicolas Sarkozy, the French president, should not assume German support for his finance minister, Christine Lagarde, as Mr Strauss-Kahn’s successor, for she would only continue in the same vein. For choice, Angela Merkel, the German chancellor, would prefer a disciplinarian German.
Even as little as a week ago, any form of restructuring was an almost taboo subject; to the extent that it was discussed in public at all, it was only to predict the utter financial and economic chaos that would follow were it ever allowed to happen.
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