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Daily View: What now for the Euro?

Clare Spencer | 11:48 UK time, Wednesday, 25 May 2011

At a time when Europe is looking at restructuring Greece's debt, more European countries are having debt problems and the euro has plummeted commentators ask if the euro is worth saving.

The Guardian's editorial says what happens this week in EU discussions in Frankfurt and Greece will "define the entire eurozone for years":

"Whatever the high politics of the Greek crisis there is a crucial aspect of the discussion that is not often aired: the economic reality. The cuts already imposed on Greece have seen its economy collapse and the budget deficit soar way above official forecasts. The emergency loans that Europe and the IMF extended to Athens a year ago were really nothing more than a means for the government to repay its debts rather than regenerate the economy. As Vince Cable rightly remarked yesterday: 'You can't just deal with this by cutting, cutting, cutting ... it does not work.' Sadly, Europe's policymakers are some way from recognising this; nor has the Athens government made the case."

Hamish McRae says in the Independent that the euro crisis is symptomatic of an illogical bond market:

"At the moment we have a two-tier situation in the bond markets. Most developed countries can borrow very cheaply, while a few can't borrow at all. This makes no sense. Ireland could borrow cheaply four years ago when it did not need to; now it can't when it does. This flip from easy money to the reverse represents a market failure and a lot of people have lost a lot of money as a result. So it is reasonable to expect investors being asked to lend to a country for, say, 30 years, to do due diligence about the likely tax base of the country in a generation and the implications of that for its current policies."

The Times editorial argues Britain should not be "in the business of bailing out the eurozone":

"Britain is fortunate that, having wisely not joined the single currency, it is protected to some degree against eurozone contagion. It is also not bound to chip in to every bailout fund beyond those obligations arising from its membership of the IMF and its participation in a European crisis fund agreed by the former Chancellor, Alistair Darling. Yet the demands for Britain to open its chequebook more generously persist. Some Italian policymakers, for instance, have gingerly (and preposterously) suggested that maybe London's contribution to the EU's bailout fund should be greater than Rome's in view of the fact that British banks are more exposed to any fallout from the eurozone's problems. While true, this would be not only a political price too far, but a financial one, too."

In the Financial Times Neil Hume picks out what Christian Noyer, governor of the Bank of France and a member of the European Central Bank's governing council says will happens if European debts aren't paid after restructuring Greece's debt:

"And for the central banks, what happens? Greek debt will become debt that is no longer worth anything. It's no longer debt that can be considered as sufficiently safe for operations in the Euro System. That means by definition that to restructure is to become ineligible as collateral. If it's ineligible, then it means a large part of what the Greek banks bring as collateral for refinancing can no longer be used. That means the Greek banking system can no longer be financed."

In Der Spiegel Matthias Brendel and Christoph Pauly say the European Central Banks need to learn the lesson about purchasing risky bonds:

"If the euro crisis rumbles on, the worst-case scenario isn't all that far away. To ensure its national survival, Ireland should reject the European rescue effort and, instead, accept the failure of its banks as a necessary evil, Morgan Kelly recently said. The renowned professor of economics at University College Dublin knows who would be especially hard-hit by such a step: the ECB.
 
"'The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner' Kelly wrote in the Irish Times earlier this month."

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