EU BLUFF ON GREECE ???

Europe’s leaders are struggling to avert the biggest financial disaster in the euro’s 11-year history…

Whether the EU has time is an open question. Credit Suisse says Greece must raise €30bn (£26bn) in debt by mid-year, mostly in April and May. Greek banks have been shut out of Europe’s inter-dealer markets, forcing them to raise money at killer rates. They are suffering an erosion of deposits as rich Greeks shift money abroad. This could come to a head long before April.

French banks have $76bn of exposure to Greece, the Swiss $64bn, and the Germans $43bn says Bloomberg. But this understates cross-border links. There are large loans between vulnerable states. The exposure of Portuguese banks to Spain and Ireland equals 19pc of Portugal’s GDP. Interlocking claims within the eurozone zone are complex. Contagion can spread fast.

The rescue of Greece marks a new wave of the global financial crisis. The first was about the solvency of banks; this one is about the solvency of sovereign countries.

As Ambrose Evans Pritchard said  ” There was an element of bluff in Thursday’s accord, as if the EU leaders hope to muddle through with “constructive ambiguity”, fingers crossed that their vague political pledge will never be tested. Bluff is a valid tool of statemanship, but in this case their bluff could be called very soon.”