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Conflicting voices in euro crisis criticised

26 June 2011, 14:06 CET
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(PARIS) - Europeans have struggled to speak in one voice since the beginning of the Greek debt crisis, but US Treasury Secretary Timothy Geithner's criticism of the cacophony has brought the issue back into focus.

A half-dozen stakeholders with varying fears and concerns give the impression of conflicting agendas in a crisis that has given Europe's single currency its biggest test ever.

In Greece, the crisis erupted in October 2009 when the newly elected Socialist government discovered gerrymandered statistics hiding debt far more colossal than thought.

Desperate in the face of bankruptcy, Prime Minister George Papandreou secured last year a 110-billion-euro ($155-billion) line of credit -- to be released over three years -- from core eurozone countries and the IMF in return for budget cuts and asset sales that were to impress markets into leniency.

But that credit didn't come easily from Germany. The electorate there frowned upon an expensive lifeline for southern Europeans many Germans see as economically undisciplined and unable to make hard decisions.

Afraid to rankle voters, Chancellor Merkel loudly resisted calls from European leaders to come to Greece's rescue.

But at the eleventh hour, Germany turned around and approved the bailout -- after securing the IMF's participation too -- puzzling markets and outside observers -- like Secretary Geithner.

"I think it is very hard for people who invest in Europe ... to understand what [Europe's] strategy is when you have so many people talking," Geithner said at a CFO Forum organised by The Wall Street Journal on Wednesday.

"The simple rule of crisis management is you want to have a simple, clear, unified declarative strategy."

More recently, in the debate over a second Greek bailout, Germany differed strongly with the European Central Bank, another key player in the rescue packages.

True to form, Germany demanded that private investors restructure their debt, a move almost certain to be deemed a default by ratings agencies and world markets -- an impossible outcome to the ECB.

The ECB, as the great protector of the euro, strongly faced down German intransigence.

Other eurozone players like France and Luxembourg rallied behind the ECB, with leaders at times making their views known bluntly, troubling markets in consequence.

Ratings agencies, another player in the eurozone debt drama, will look closely at how private investors participate. Anything resembling restructuring will be slapped with a default rating whose consequences could ripple dangerously through the world economy.

Markets, the great aggregator of global economic sentiment, have largely integrated the likelihood of a Greek default of some sort over the coming months or years.

But analysts fear that if it happens in a disorganised fashion, the crisis would prove contagious to other European peripheral nations like Portugal, Ireland and even Spain and Italy.


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