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Consequences of Greek bailout

Posted July 07, 2011, at 3:41 p.m.

Interventions by both the chancellor, George Osborne, and the mayor, Boris Johnson, suggest a rising anger among Tories about the prospect of another Greek bailout. But it is not only they who feel inclined to let Greece sink or swim — and probably sink — in a sea of debt rather than put up yet more cash. It goes against the grain to allow governments to throw good money after bad and to protect banks from the consequences of their poor judgment in lending to Greece and Greek banks.

Unfortunately, the consequences of a Greek default could be severe for Europe as a whole.

As for Britain, our exposure to Greek debt is actually fairly modest: We hold just over 2.1 billion pounds of Greek government debt and just over 9 billion pounds to Greek banks and other institutions. French banks are far more heavily exposed. But like it or not, as we found before the credit crunch, the financial markets are interconnected; Britain is no island when it comes to the banking system.

Osborne is right to take a tough line: Successive Greek governments are largely responsible for the mess the country’s finances are in, and the present ones must now take the painful measures necessary to restore its credit-worthiness.

London Evening Standard (June 24)

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