Sunday, June 17, 2012

World Braces for Test of Euro

by Stephen Fidler

Wall Street Journal

June 16, 2012

Europe, facing a momentous Greek election after a week of mounting financial stresses, is preparing for what some financial analysts are calling its "Lehman moment": the prospect that Greece could leave the euro currency union following Sunday's vote.

Yet, European officials say that even an election that results in a Greek embrace of the euro and an acceptance of the terms of Europe's March bailout of the country may only temporarily ease pressure on the euro zone, whose crisis-management strategy many analysts say lies in shreds.

Borrowing costs in Spain and Italy rose sharply higher in recent days despite efforts to insulate Spain, the euro zone's fourth-largest economy, from the effects of Greek uncertainty by lining up a bailout request last weekend for as much as €100 billion to boost the capital of Spanish banks.

"We are back in the danger zone," said Jean Pisani-Ferry, director of Bruegel, a Brussels-based economic think tank.


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