The big news on Monday regarding the Greek debt crisis was the momentum gathered over the weekend by a proposal for a European Monetary Fund for the euro zone. Initially proposed by the German finance minister, the proposal was immediately embraced by the EU commissioner for monetary affairs. Now comes the inevitable backlash, which is necessary if only to get an idea of the realistic contours such a plan might assume. The major question concerns whether such an institution would require amendments to existing treaties, with that depending on what kind of linkage it would have to actual monetary policy. It seems increasingly clear, though, that just its hefty price tag will make it a long-term project rather than an immediate fix.
Meanwhile, credit default swaps — and particularly “naked” shorts consisting of speculative purchases of default insurance on debt one doesn’t hold — are increasingly being lined up in the EU’s crosshairs. That the jury is still out on how big a role such trading is playing in the Greek crisis is in many ways politically irrelevant, and will become increasingly so if the EU or individual member states are ultimately forced to bite the bullet and pony up some cash for Athens. In that case, they’ll need to deliver some scalps, and further Greek austerity at the cost of potentially contagious social meltdown is unlikely to be the remedy of choice.
I can’t help but get the feeling regarding the financial crisis that we’re so busy admiring the size of the tsunami we narrowly escaped that we’re blind to the one bearing down on us. There’s little doubt that when it is definitively over, the Great Recession will result in a great deal of positive construction and regulation, as did the Great Depression. But I’m not convinced we’ve yet felt the necessary pain to push those reforms through, and I’m not convinced the measures already adopted will prove enough to avoid the next round.