Another level of commitment to Greece and the Euro, similar posturing, but the fundamental structural considerations remain. After deferring the most difficult issues, Euro leaders have increased the financial assistance to be made to Greece. They have also initiated discussions of a type of “European Monetary Fund” to help overcome looming problems in bigger but for now less troubled economies as Italy and Spain. And, of course, the rhetoric of determined support for the Euro as well as the Eurozone’s weaker economies was on display.


Will it work this time after 3 or 4 previous attempts that deflated like a hot balloon gone cold?


It depends on what you call success. For Greece, it will enhance liquidity, but - there is always at least one but and this time a couple:
--- Greece will go into technical default, as the “private investors” in Greek debt become involuntary volunteers in a swap for longer-term debt that in end also has them take an estimated 20% haircut on their holdings.
---This solution again fails to address the fundamental problem for Greece – can it grow out of current austerity without de-linking its currency from the Euro (currently managed by the ECB to complement already mature and stable economies as Germany).



Reducing Borrowing Costs, for Now:
The Solution may help the other “PIIGS” (Italy, Spain, Portugal and Ireland) by reducing the spreads and pressure on their borrowing spreads or costs, for the moment.


While Germany and other more established economies gain a breath and a greater moment of stability for the Euro, yesterday’s “Eurozone Summit” signals an ongoing and probably increasing flow of revenues from north to south within the Eurozne. The introduction of the concept of a European Monetary Fund appears in part a concession to the reality that in order to enjoy the current status of the Euro, the rich will have to subsidize the poorer members of the Eurozone family.


Indefinite Subsidy Relationship?
Will this only be temporary relief unless the underlying causes of these crises are resolved? It depends on how much money the richer uncles of Europe are willing to send the way of poorer cousins, and will this have ultimately its own corrosive effect.


How Much Money are They Willing to Throw at Problem?
For longer term success and stability, the Eurozone will have to find a more lasting solution of how to coordinate a centrally managed monetary policy with that of individual states’ directed fiscal policy. This is still a rather unprecedented longer-term experiment. Efforts to tighten the rules and prevent cheating may be of some value, but such could also worsen the problem for those states as the PIIGS who may need more flexible currency(s) to accommodate their needs. It is mostly a matter now of how much money the richer uncles are willing to throw at the problem.


Related Reports at “International Financial Crisis Channel” - diplomaticallyincorrect.org/c/international-financial-crisis


By Ambassador Muhamed Sacirbey


Facebook – Become a Fan at “Diplomatically Incorrect”


Twitter – Follow us at DiplomaticallyX


PREVIOUS ARTICLES
– “Death of the Euro?” - diplomaticallyincorrect.org/films/blog_post/death-of-the-euro-by-ambassador-mo/29753

-“China Loans to Greece: Influence in Europe - Leveraging Economic Might into Political Influence” - diplomaticallyincorrect.org/films/blog_post/china-loans-to-greece-influence-in-europe-leveraging-economic-might-into-political-influence/30564