The reason why European leaders will not accept a haircut on Greek debt is because the European Central Bank has exposures worth €100 billion ($144 billion) tot he country, according to Wolfgang Münchau.
Writing in the Financial Times, Münchau explains that beyond killing Greece’s banking system, the overall impact on the ECB would be huge. It would also spread to around the European system, causing losses at banks throughout the eurozone
This is not a scenario the ECB is willing to accept, and, in many ways, it is their leadership calling the shots. That’s why Greece is likely to just get more cash from the EU and IMF, or sell its debt to them. Soc Gen described this scenario as a postponement of the inevitable. It also relies on politicians being willing to dole out billions more in tax-payer money, something Finnish politicians continue to stand against.
The only way to solve this problem, and that of future bailouts, is for Germany to agree to a political union, according to Münchau.
Europe’s political elites are afraid to tell a truth that economic historians have known forever: that a monetary union without a political union is simply not viable. This is not a debt crisis. This is a political crisis. The eurozone will soon face the choice between an unimaginable step forward to political union or an equally unimaginable step back. We know Mr Schäuble has contemplated, and rejected, the latter. We also know that he prefers the former. It is time to say so.