The Euro Crisis: The End or the Beginning?

January 26, 2012 - On December 9, 2011 the Heads of State of 26 EU member states, less the UK, adopted a fourfold strategy to end the deteriorating state of the EURO in general and to stabilise the public finances of Greece in particular. A major element of this package of measures is the rescheduling of the public debt of Greece by negotiating a reduction of at least 100 billion EUROS held by banks and other private investors and the voluntary reissuing of new bonds at reduced rates of interest. This measure requires the active cooperation of private lenders who, should there be a formal default on payment of their bonds by Greece, can legally trigger the default guarantees which cover their bonds. The consequences of such a default and subsequent triggering of compensation are impossible to calculate. They might be negligible, given their long anticipation, but they would most probably provoke the bankruptcy of the Greek state and its immediate withdrawal from the EURO. This in turn might well provoke the withdrawal of Greece from the EU and many believe it could lead to the collapse of the EURO itself.

Given the urgency to avoid the anticipated risks one would have expected that urgent steps would have been taken to resolve this crisis immediately after December 9. Further urgency is added by the fact that Greece must refinance 14.5 billion EUROS in bonds on March 13, 2012 at the very latest or face default. However what we have seen is a financial crisis in slow motion. Governments, especially Germany have insisted that this must be done as planned and that no further help could be expected by Greece. The IMF has been willing to assist but, like the EU has insisted that the reissued bonds should carry a low enough level of interest to be carried by Greece in the future. The EU and IMF have recently indicated that bonds should be limited to an interest rate of 3.5%, while the banks and hedge funds which now hold substantial numbers of bonds first called for 5% and now refuse to go below 4%, and are suggesting that it is the responsibility of EU governments to assist Greece.
A compromise on rescheduling the Greek debt must be reached this week or at the latest during the week of January 30 so as to meet the deadline set by the EU Heads of State summit. Should this not happen we may well be able to see which, if any, of the dire predictions is actually be correct.

Armand de Mestral is Emeritus Professor and Jean Monnet Professor of Law at McGill University in Montreal. His current research interest focuses on the law of international economic integration. Dr. de Mestral has more than 30 years of experience engaging with a wide variety of media especially in TV and Radio and welcomes media inquiries. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..