Mike O’Rourke succinctly explains why the Greek bailout, which will involve both the EU and the IMF, is such a mistake.
The problem with IMF involvement and the entire manner in which this situation has been handled is that investors are looking for EU leadership to establish a clear framework as to how the Club Med deficit problems will be addressed. Simply put, investors prefer a strategy as opposed to ad-hoc reactionary policy similar to what prevailed in the United State in the fall of 2008. Ad hoc responses are the result of policy makers chasing the market. As most every investor who has been around for the past decade can attest markets are often subject to extended bouts of inefficiency in both directions. Policy makers need to exhibit that they have the confidence and clout to navigate a volatile situation to establish the path out of the crisis, which will then eventually lead to the desired level of stability. This response has been reactionary and will likely solve Greece (at least for now), but still leaves the door open for a new ad hoc response should another debt laden EU nation come under pressure.
Angela Merkel finds herself in the worst of both worlds. She’s a disappointment to German conservatives, hoping for a resolute approach to Greece, and yet she’s not a leader with a steady hand.
Just hope that the worst fears in Spain, Italy, and Portugal don’t actually require any real intervention.
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