Damaging as it might have been Greece should have been allowed to go bankrupt within the Eurozone. The recent naive actions of the ECB and Euroepean 'leaders' have indicated panic and short-term thinking, rather than thoughtful, measured actions contributing to long-term stability. The survival of Eurozone policitical and monetary Instituions are now threatrened by the implied open-ended committment to support and finance PIIGS's debts and junk government bonds. The bankruptcy of the Greek government and subsequent restructuiring of Greek debts would only have directly affected some three percent of the Euro economy, True the contagion effects would have been considerable, but they could not in themselves threaten the financial viability of the ECB and Eurozone governments. European 'leaders' and the ECB have irresponsibly succeded in turning a Greek crisis into a Euro crisis by staking their credibility on the behaviousr of those they are providing incentives to behave badly... Few believe that Greece can avoid the need to restructure its debts. This implies continuing need for generous donors willing to overlook profligate incompetence. All this is an unacceptable incentive for others to follow Greece's appalling example.
Unfortunately, the motives of some politicaians seeking to bail out Greek deficits are also suspect as their national banks are deeply involved in high-risk loans to the Greek government (for which they recieved high-interest rates) that are now threatened with a haircut. At least the Dutch and German Central Banks had the wit to oppose the ECB's purchase of junk governemnt bonds. One thing that must be learnt from the present euro-crisis is that politicians should be kept at arm length from euro-monetary decisions. A second lesson to be learnt is that politicians cannot change economic realities by actions that do not address the fundamental problems. As for German attempts to restrict hedge fund activities, it is simply like trying to cut a hole in water with a short dagger. Once again we are witnessing valiant attempts by politicians to control the symptoms rather than tackle uncomfortable causes of the present difficulties.
