German Chancellor Angela Merkel can’t win.
She’s under tremendous pressure to do more to rally German politicians to bail out Greece and Spain and to keep the European monetary union intact. She’s under the gun from nearly every government leader in the Western world, as well as investors including billionaire George Soros.
But if she actually succeeds in that job, her country is going to face debt downgrades from the likes of Moody’s, and quite possibly the rise in German borrowing costs and an even greater strain on the German economy that is likely to come with it.
Support for Greece was weakening among Angela Merkel’s coalition government partners, even before Moody’s dropped Germany’s outlook, threatening its AAA debt status.
Now, it’s strained all the more.
Germany holds the key to Greece’s future in the euro zone, and some politicians are now ready to throw it down the storm drain, letting Greece run out of money as early as September.
The exit of Greece itself is perhaps just the surface of the problem. What might its exit form the euro zone do for investor confidence in Spain and Italy, where bond yields are now near euro-era highs?
Paul Taylor at Reuters says it best:
To understand the impact of a potential Greek exit from the euro zone, imagine an operating theater inside a betting shop.
As surgeons prepare to amputate a gangrened foot to prevent infection spreading to healthier parts of the body, gamblers on the sidelines lay bets on which limb will be next for the chop.
Photo by: Severin Nowacki
