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Daily View: What are the implications of second Greek bailout?

Clare Spencer | 09:40 UK time, Friday, 22 July 2011

Euro sign


Commentators ask what the implications of the second European bailout for Greece could be.

The Daily Mail's editorial describes the bailout as a short-term solution:

"Described by some observers as 'a selective default', the deal buys a little time but does nothing to tackle the underlying crisis within the euro.
"This is that the weaker countries - because they don't have the option of devaluing their currencies - continue to slip deeper and deeper into debt with scant hope of redemption."

The Economist's Schumpeter columnist also complains that the solution is temporary:

"At best, Europe has won a breathing-space. But so much can still go wrong, not least in Greece, whose chances of getting on top of its towering debt without a much bigger restructuring still look remote. By going for a modest restructuring now (which will also include a small programme of debt buybacks) European leaders will find it harder to impose a more stringent one in the future, leaving European taxpayers footing even more of the bill if Greece can't get its debt under control."

The Times editorial says the bailout still leaves the eurozone countries with a choice:

"The escalating debt crisis has left the 17 countries that belong to the euro with a momentous decision. Do they continue to apply financial sticking plasters to the problem, making it more likely that the single currency will eventually disintegrate with potentially devastating consequences for the European economy? Or do they find a long-term cure - do Germany and France agree to put their financial might behind the debts of weaker members in return for some control over their tax and spending policies?
"The choice is politically fraught and it has taken months of dithering for eurozone leaders to agree the shape of the latest bit of plaster. Both options involve big risks. But one thing is clear: it should be a decision made by the people of Europe. Unfortunately, if past eurozone."

Simon Jenkins says in the Guardian that this bailout marks the point at which the union will become closer, with dangerous consequences:

"The latest Greek bailout is the moment when continental Europe finds itself forced to transmogrify from a loose federation into a brittle unitary state. If European politics starts to implode and return to xenophobia, manned borders, ethnic cleansings and trade boycotts, that start is now. This is a true turning point.
"From the earliest days of European union after the second world war, such a point was the greatest danger. As long as national currencies could move flexibly in a climate of free trade, Europe's extraordinarily diverse political economy could enjoy a 'variable geometry'. The safety valve of devaluation allowed countries to adjust over time. Their distinctive autonomies and political cultures could survive.That safety valve is now turning off."

The Telegraph's Peter Oborne agrees with Simon Jenkins that this marks the beginning of a closer union which he says has always been Germany's wish:

"Despite the grumbling, for the Germans, the bail-outs are worth every penny, because they guarantee a cheap outlet for their manufactured goods. Yesterday's witching hour of the European Union means that Germany has come very close to realising Bismarck's dream of an economic empire stretching from central Europe to the Eastern Mediterranean."

Paul Krugman warns in the New York Times that the austerity measures in the plan could, along with US debt problems, lead to a great recession:

"Since those countries 'under a programme' are being forced into drastic fiscal austerity, this amounts to a plan to have all of Europe slash spending at the same time. And there is nothing in the European data suggesting that the private sector will be ready to take up the slack in less than two years.
"For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed."

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