The new eurobillions lottery
Others may rush headlong into their financial crises, but on the Continent they like to give them time to mature. There are those who've been betting on a eurozone chapter to this financial crisis ever since Lehmans. Others started betting on a euro showdown the day the single currency began.
Now the nay-sayers think they've hit the jackpot. Read the headlines, and you'd think that the problems of Greece were about to bring the eurozone to its knees. But it doesn't have to be that way.
To crack this, European officials and governments just need to do something they find very difficult. They need to get ahead of the curve.
More specifically: they need to show they have a solution not only to the short-term problem of Greece but also to the long-term structural problem for the eurozone that the PIIGS have come to represent.
We should remember one thing: Greece is a special case. The chart below (from Goldman Sachs) tells the story. Other countries have a double-digit public deficit as a share of GDP, or a stock of public debt over 100% of GDP, or debt-financing costs that are also over 10% of GDP. But Greece is the only one to have all three red marks.
Greece is also the only country that's been forced to admit that its tax revenue and spending figures in recent years had been more or less fictional. And its public servants seem uniquely adept at the politics of denial. According to the New York Times, the Greek parliament more than doubled its administrative staff last year, from 700 to 1,500. And the finance ministry says that in 2009 alone, 29,000 public-sector workers were hired to replace 14,000 who retired. This, even as the country was slipping deeper and deeper into the red.
So, it's a special case. And it's small - responsible for perhaps 3% of eurozone GDP. That's why many have said Greece was a good first test case for the eurozone. The stakes seem smaller; the amounts more manageable. But that's only true if ministers and officials get it right. If they get it wrong - a crisis that did involve 3% of the eurozone suddenly involves more than 30%.
The challenge is to fix it - and contain it. But how?
I'm not in the business of prescribing solutions. But I would say that any solution to the Greece problem has to send two powerful messages to the financial markets.
The first is that - all appearances to the contrary - Europe can do crisis management.
The second message is that they "get" the broader structural problem afflicting the euro area and they're committed to fixing it.
This last challenge merits a post in its own right. I'll say more about it later in the week.
But here's what I would say about message number one.
One reason why so many predicted a European "round" of the financial crisis a year ago was that people looked at the mish-mash of European institutions - the ECB, the commission, the council of ministers, all the national financial regulators (not to mention the web of treaty clauses that did or did not bind them together) and wondered: "how is this lot going to respond if a Lehmans explodes on their patch?"
Henry Kissinger famously asked: "when I want to call Europe, who do I call?" Investors' version of this question is: "who's going to pay?"
And when it comes to Greece, the answer has been far from clear.
Every time the markets think they have an idea how Greece could be bailed out - for example, through a loan from the European Investment Bank - the institution in question releases a statement ruling it out. This morning the EIB said it could "only finance economically viable projects" and that its rules would not allow it help an EU nation cover a budget deficit.
A similar thing happened two weeks ago, when President Barroso appeared to tell journalists that EU support could be there for Greece. Hours later the UK Chancellor, Alistair Darling, made clear that he and other non-euro members of the EU would expect the eurozone to solve its problems first.
As it happens, I don't think EIB involvement is ruled out. The EIB did participate in a broader IMF loan package for Latvia last year (though, crucially, Latvia is not in the euro). What the EIB doesn't want to do is take the lead.
The problem is that nobody does. It's that lack of clarity - more than their details of their particular financial situations - which is driving investors to punish other Pigs (Portugal, Italy, Ireland, Greece and Spain) as well as Greece.
It doesn't help that personal rivalries - and institutional pride - seem to be getting in the way of a deal.
Almost everyone - including the Greek government - thinks an IMF programme would provide the cleanest, most credible, solution. That could be the IMF acting alone, or alongside the EU. However, key European officials are dead against the idea. This is mainly because they can't bear the symbolism of the IMF coming in to bail out the euro. But there are also suggestions that President Sarkozy is fighting an IMF deal for domestic political reasons.
If it were held today, French polls suggest that the IMF Managing Director, Dominique Strauss-Kahn would handsomely beat Sarkozy in a presidential election. Strauss-Kahn has made no secret of wanting to come back to French politics (he hinted as much in a radio interview earlier this week). The word is that Sarkozy can't bear the idea of his rival coming in on a white charger to save the euro.
This may or may not be a fair depiction of President Sarkozy's motivation. Only he can say authoritatively one way or another. But we do know that such speculation does no good for the euro, or for Greece.
At their summit on Thursday, investors - and the rest of the Pigs - need Europe's leaders to show they can rise above all this. And that they can indeed do 21st-Century financial crisis management after all.
Update 16:10: Dempster (Comment 5) takes exception to my use of the term Pigs - the rather unfriendly acronym for the eurozone's problematic periphery (Portugal, Italy, Ireland, Greece and Spain). True, it is disrespectful. But you have to let economists have some fun.
Maybe you would feel better if I told you the new term that some are using for the economies in trouble if Greece should fall is Stupid (that's Spain, Turkey, UK, Portugal Italy and Dubai). Then again, maybe not.