Greece on the Defensive

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In a match rich with economic irony and rhetorical potential, the German national team defeated the Hellenic side 4-2 in the European football championships on Friday. Soon afterward, the drama moved to the economic playing field, when the Bild am Sonntag newspaper published a survey showing that 78% of German citizens want Greece to leave the euro area. Support eroded elsewhere as well, with 65% of the French and almost 50% of Italians and Spaniards also favouring a Greek exit. Overwhelming majorities in all four countries believe that rescue funds will never be repaid.

In an interview after the results, Finance Minister Wolfgang Schaeuble said that the Greeks had severely damaged their credibility within the euro area, making it less likely that they will succeed in extracting substantial concessions when renegotiating rescue package terms in the coming months. He stated that the ball is now in Greece's court. It's in their hands to win back the confidence of Europe. They're only going to accomplish that with concrete actions and deeds.

He also appeared to slam the door shut on socializing debt across the euro area, saying anyone who has the chance to spend someone else's money will do that. You'd do that, and so would I. The markets know that. And so from that point of view, they wouldn't be convinced by euro bonds.

He may have ascribed more rationality to the markets than they actually possess.

Margaret Thatcher once said that the trouble with socialism is that you eventually run out of other people's money; but investors, pundits, and the media have largely ignored this principle since the day that the common currency area was founded.

Germany is finding itself isolated, arguing that while jointly-backed debt would unquestionably boost market sentiment in the short term, it would only lay the foundations for economic and political strife in the long term.

This stance leaves Merkel and Schauble almost alone in playing defense against a determined set of forwards, most of whom are seeking to please the crowd by scoring against Germany's balance sheet. Of course, many of these strikers are prone to scoring own goals, meaning that this match may go on for far longer than expected - and be far more entertaining (read volatile) than expected.

*In a side note, a Greek football fan commented on the Greek-German divide in the New York Times weekend edition, saying They make beer -- and we drink it. That's why they don't like us.

Pundits have written millions of of words about the euro area's inherent problems, but I don't think any have been so explanatory, or eloquent. Beer and profundity go together after all...   

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