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Update on Greece

This post is a quick update to our ongoing commentary on the Greek fiscal crisis and its implications for the euro.  It appears that the European Central Bank is taking a hard line:

The European Central Bank has given its clearest warning to date that there will be no EU bail-out for Greece if it fails to control its spiralling deficit, raising the stakes in a game of brinkmanship over the future of the euro.
Jurgen Stark, the ECB’s chief economist and the powerful German member on the bank’s inner council, said Greece’s problems are entirely “home-made” and do not meet the terms required to trigger the rescue mechanism under EU treaty law, which is limited to countries that face severe difficulties “beyond their own control”.

“The Treaties set out a ‘no bail-out’ clause, and the rules will be respected. This is crucial for guaranteeing the future of a monetary union among sovereign states with national budgets. Markets are deluding themselves if they think that the other member states will at a certain point dip their hands into their wallets to save Greece,” Stark told the Italian daily Il Sole .

Source: Euro brinkmanship escalates as ECB shuts door on Greek bail-out

It will be interesting to watch this war of words escalate.  When it comes to the boiling point, we suspect that the European Central Bank will back down and come to Greece’s rescue.  But whether it does or doesn’t, we see the uncertainly surrounding the crisis weighing heavily on the euro in 2010.

Related posts: “Follow-up to “Who’s Next” — A Greek Tragedy“, “The Destruction of the Dollar? Not So Fast…“, “Follow-up to “Who’s Next” — Spain at Risk of Downgrade“, “Follow-up to ‘Who’s Next’“, “Who’s Next”

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy