Time to change the record?
Writing this blog seems to have become something of a stuck record, always harping on about Greece and the eurozone but, if you listen, the tune is changing all the time.
The problems (and attempted solutions) facing Greece and the eurozone have rumbled on over the weekend. And the Greeks have woken up this morning waiting to find out who their new Prime Minister will be after George Papandreou has agreed to stand down after agreeing to form a new coalition goverment to approve the EU-IMF bailout package. The names of Lukas Papademos (a former deputy president of the European Central Bank) and Finance Minister Evangelos Venizelos are both in the frame for the top job. Once the new leader is named, president Papoulias will invite parties to join the new coalition government, which will remain in place until elections are called, possible as early as February. Let’s hope that the indecisions which have plagued Greece (and by default the eurozone as a whole) will be laid to rest over the coming weeks.
Meanwhile, elsewhere in the eurozone, the Italian government’s borrowing costs have risen again as fears grow over the political uncertainty in Rome. The 10-yr bond yield has risen from 6.37% to 6.64%, a record during Italy’s membership of the euro. The markets are now increasingly doubtful over Italy’s ability to repay its debt, and see this, potentially, as the final catalyst which will lead to the downfall of Silvio Berlusconi. The potential damage that Italy could cause the eurozone is significantly greater than Greece. Greece only accounts for some 2% or total euro-area GDP, whereas Italy represents the eurozone’s third largest economy behind Germany and France. In the words of the BBC’s Robert Peston, “If you want to see Italy on the road to ruin, there’s no shortage of signposts.”