The revolt of the debtors
- By Daniel Gros
0 Comment(s)
Print
E-mail
China Daily, December 8, 2011
With popular resistance to paying for profligate southern Europeans rising in Germany and Holland, governments there might be forced to ask their people whether they want to pay the huge costs implied by their commitments to bail out eurozone members that are unwilling or unable to pay. That is why the bonds issued by the eurozone's rescue fund, the European Financial Stability Facility, are trading at a substantial premium relative to German debt, while efforts by Klaus Regling, the EFSF's head, to convince China, Japan, and other Asians to buy the bonds have gotten nowhere.
The broader message of the Greek move is that "coordination" has so far been a code word for almost total control by creditors (sometimes together with the ECB). The attempt to impose a benevolent creditors' dictatorship is now being met by a debtors' revolt. Financial markets have reacted so strongly because investors now comprehend that "sovereign debt" is the debt of a sovereign that can simply decide not to pay.
Holders of bonds of the eurozone's member states have now been put on notice that, when the going gets tough, the real sovereign, "We, the people," might be asked whether they actually want to pay. And the answer might very well be an emphatic "no," as opinion polls in Greece and the experience of Iceland (whose population twice voted down deals agreed by the Icelandic government) suggest is likely.
Nobody can know at this point whether Portugal or Italy might be the next stops on this road of resistance. The result, however, is quite predictable: soaring risk premia throughout the periphery.
Papandreou's decision to call a referendum in Greece could thus have marked the beginning of the endgame for the euro. At this point, the common currency can be saved only if systemically important countries – namely, Italy and Spain – take concerted action to demonstrate that they are different from Greece.
Daniel Gros is Director of the Center for European Policy Studies.
Copyright: Project Syndicate, 2011.
Go to Forum >>0 Comment(s)