The
eurocrisis countries are not OK. The nonperforming loans are encumbering their
banks' balance sheets, and not enough has been done to change this. This keeps
the crisis countries politically on a tight leash, as creditor countries'
political and probably financial support is inevitable. This explains why
politicians in Spain and Italy remain loyal toward the EU and why
they act passive-aggressively toward Greece. But what happens later this year,
when Portugal and Spain hold elections?
While there
is cautious optimism about a deal being made to resolve the Greek debt crisis,
make no mistake – there will be losses at some point. But a quick look of the
worst possible outcome suggests that they might not be that bad. So did the
stock market get scared into a big correction, just before it makes a big
rally?
There will
be no contagion from Greece. The euro area's leaders have
blocked every channel that could cause harm. The only remaining contagion
channel is themselves, as they will now be unable to complete the monetary
union as a result of their actions over Greece.
In my third
article on Greece, I outline what will be next on the
agenda. Losses from Greece will have to be handled somehow, and
the European Central Bank will do what is expected from it - but nothing more,
and nothing less. The key will be how the European institutions handle the
country-specific economic control - too much or too little, someone will become
alienated.