The Euro-crisis heats up

Angela Merkel, Nicolas Sarkozy and George Papandreou are in crisis talks about Greek debt. There are rumours that they are preparing an “orderly default” for Greece. But, officially, Merkel is still pressing ahead with implementing the existing Greek debt deals. This meeting also has a domestic context for Merkel. According to the FT, she is determined to stamp on the growing disquiet within her governing coalition over the Eurozone crisis and is pleading for calm resolve. It remains to be seen if she succeeds. 

The danger of contagion within the Eurozone remains and concerns about the exposure of French banks persist, which is doubly worrying for Nicolas Sarkozy given the proximity of French banks to the French state. Despite this, France is not at panic stations yet. The FT reports that French officials have resisted pressure to bolster the banking system, saying that their banks are sufficiently capitalised. Moody’s is not so optimistic and it has shorn a point off the credit ratings of Soc Gen and Credit Agricole; BNP Paribas is on a watch list and may yet be downgraded. Moody’s also warns that further downgrades are likely.

Meanwhile, the European Commission (never one to miss a crisis by which it could benefit) is preparing to endorse Eurobonds as a solution, despite Germany’s avowed opposition to the scheme. The sense of impending disaster, both political and economic, is increasingly palpable.