Tuesday, May 4, 2010

And now? A dark scenario

by Charles Wyplosz

VOX
May 3, 2010

Eurozone members, the IMF, and the ECB have announced significant commitments to assist debt-laden Greece. This column outlines a dark scenario in which the plan fails and contagion spreads, necessitating further assistance to other indebted Eurozone governments. That could risk high inflation or debt problems for the entire Eurozone.

The weekend announcement of a new plan for Greece, topped by the ECB decision to accept low-grade Greek debt instruments, is commonly seen as a European success. Quite to the contrary, we may have just planted the seeds of an unraveling of the monetary union. Here is a dark scenario.

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