REST OF EU NEEDS TO FACE REALITY OF GREEK BANKRUPTCY

PORTUGAL NEXT IN LINE

‘Beginning of the end for single currency’ say credit sources.

According to US credit sources contacted by The Slog last night, the Greek Government is more likely to face bankruptcy – that is, trading insolvently – before the question of debt default even arises.

When the European Union summit on Greece fudged together an aid promise two weeks ago, some commentators (but not this one) saw a glimmer of hope. But rocketing gilt yields and obvious signs of meltdown in the Greek banking sector have made the situation far worse in double-quick time.

“The time for EU pussyfooting is long gone” said one senior credit agency source, “Trichet issuing unreal statements and Brussels giving out calm communiques just ain’t gonna cut it. A run on Greek national funds is now a near certainty”.

“This is no longer about liquidity — it’s a solvency issue,” former IMF economist Stephen Jen told the New York Times late yesterday afternoon EST.

What infuriates Greek officials is that an EU bailout of their country would involve at most 3% of the zone’s budget being put at risk. But the German Government headed by Angela Merkel remains adamant in sticking to its line of ‘not encouraging bad behaviour’. And there is no bridging the gap between the attitude in Berlin and that pertaining in Paris.

“What we are essentially seeing here is a nightmare for the federalists” said a senior credit manager based in Germany last night. “Opinion in German banking and business has been moving steadily anti-EU for over a year. It’s a resurgence of national self-interest. My own view is that this is the beginning of the end for the single currency”.

The Slog’s mother site nby first reported a marked rise in anti-federalist German elite opinion last May. This mood is now felt more strongly still by the population at large: even if Chancellor Merkel wanted to join a wholehearted EU bailout operation, such a move would be politically impossible for any Party in today’s Bundesrepublik.

The Slog also exclusively reported French President Sarkozy’s private view last month that Germany “is reverting to type”. Since then, Franco-German relations have become increasingly strained.

“If you look at Greece’s GDP potential and its borrowing costs,” Jen told the NY Times, “there is a gigantic gap.” The Slog’s view that Britain’s productive economy is in the same boat has been repeatedly argued in these columns.