A deal to save Greece and the euro

11 February 2010 Updated: 12 February 2010

The EU leaders meeting in Brussels have hammered out a deal to save Greece, and by extension the euro, from ruin. The details are still sketchy, and more negotiations may be necessary to firm up the deal. It was the psychological and political support the Greek prime minister sought. Things can yet change for the worse with the continuing domestic turmoil in Greece and depending on the markets’ reactions. Perhaps, the real test is yet to come. The UK government seems to have taken the position that this is a euro-zone problem and Britain will not contribute to a financial bailout package.

I’m not entirely sure if this is a good position for the UK government to take. If the speculators are burnt this time round, and the euro-zone stands firm, the next target may well be Britain. PIIGS may be among the most vulnerable economies, but if the euro withstands the current threat, these countries may be reasonably secure by the virtue of being euro-zone countries. It seems like a good (and reasonably cheap) insurance for the UK. If non-euro-zone EU member states contribute to the rescue of the Greek economy, then euro-zone countries would more be likely to help out if something similar happens to the EU countries outside the euro zone.

Added: 12 February 2010

The deal may be unravelling. The German government is reluctant to make money available, and the Greek PM is reported as attacking the deal as ‘timid’.