What Euro Crisis?

MUNICH – Despite huge rescue packages, interest-rate spreads in Europe refuse to budge. Markets have not yet found their equilibrium, and the governments on Europe’s southwestern rim are nervously watching how events unfold. What is going on?

The rescue packages were put together on the weekend of May 8-9 in Brussels. In addition to the €80 billion program already agreed for Greece, the European Union countries agreed on a €500 billion credit line for other distressed countries. The International Monetary Fund added a further €280 billion.

The driving force behind all this was French President Nicolas Sarkozy, who colluded with the heads of Europe’s southern countries. French banks, which were overly exposed to southern European government bonds, were key beneficiaries of the rescue packages.  

Since rescue measures beyond the pre-arranged Greek package had not been on the agenda for the Brussels meeting, German Chancellor Angela Merkel thought she could safely go to Moscow to commemorate the end of World War II – unlike Sarkozy, who declined Russian Prime Minister Vladimir Putin’s invitation. Worse, the leader of the German delegation to the EU meeting fell ill and was taken to hospital upon arrival in Brussels. This left the German delegation headless.