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Saturday, 6 February 2010

Will Germany 'save' Greece?

As the unwillingness of the Greeks to support their government's austerity package becomes clearer, the worry grows that the country will not be able to pretend to be close enough to the rules to be allowed to remain in the Eurozone.

A temporary suspension of Greece - a kind of purgatory - is more likely than complete withdrawal or expulsion from the single currency. The terms for any such special deal would be determined by the strongest member of the Euro, Germany; but Angela Merkel will not act without the agreement of Sarkozy plus an indication of greement from the Netherlands and Italy. As a coalition poliitician Merkel can not give too much away, especially to a state that has got into trouble by ignoring the rules over many years.

Talk of the PIGS [Portugal, Ireland, Greece and Spain] having a domino effect - each on all the others - is mere speculation: but the Germans will have it in mind that what they do to 'assist' Greece, on draconian terms, must be so structured that the other governments in the drop-zone will try even harder to conform to the requirements for Euro membership rather than follow Greece into special measures.

The unsettled condition of global stock markets in recent days is widely accepted as an argument that the Greek situation must be resolved sooner rather than later: to forestall any more widespread invalidation of sovereign debt. That point will undoubtedly be taken; so expect a reaction soon.

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