The Greek Haircut and Europe's Shared Responsibility

Why Banks and Rich Countries Have to Pitch In

Courtesy Reuters

Since the outbreak of the financial crisis in 2008, the German government has been fixated on the dangers of moral hazard: Berlin has resisted calls to foot the bill for the reckless spending of its profligate counterparts in Athens, Rome, and elsewhere. However sensible it might sound, this outlook has fed the German public’s opposition to bailouts of weaker EU countries, precluded a robust European response to the crisis, and fanned bond market contagion. Just look at the collapse of Italy’s government over the weekend.

German Chancellor Angela Merkel sorely needs a new agenda, one that allows her both to satisfy the demands of her reluctant electorate and salvage the eurozone by containing the sovereign debt crisis. The recent “Greek haircut,” in which eurozone officials brokered a deal to cut bondholder claims on Greek debt as part of a bailout package, offers just such an opportunity to shift the

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