30 JUN 2011
By Simon Kennedy | Bloomberg
The longer Greece avoids default, the closer European leaders come to breaking one of their oldest taboos by taking responsibility for the finances of a neighbor.
Even as they resist European Central Bank President Jean- Claude Trichet’s call for a “major strengthening” of fiscal ties, European authorities are becoming the biggest holders of Greek debt. That would leave the country a virtual ward of the state, the objection of the bloc’s politicians to sharing sovereignty undercut by their own efforts to save the euro.
“The more debt restructuring is avoided the more Greece’s liabilities are socialized and the more a de facto fiscal union occurs,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “If the ECB is successful in its attempt to prevent any kind of restructuring in the near- term, the region will move down the path towards the destination Trichet wants.”
Greek lawmakers yesterday approved an austerity package, clearing the way for the second international rescue in two years, which would expand taxpayers’ stake in Europe’s most- indebted country. For investors, greater subsidies from the strong to the weak risk hurting the German bonds that serve as the region’s benchmark.
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