Fixing Greece: Sarkozy v Schaeble

Sabre rattling is a basic tool in politics but financial markets take fright at the thought of a fight. French President Sarkozy’s ‘softly-softly’ approach to the Greek debt crisis is to be commended, in contrast to German Finance Minister Schaeble’s blitz…

The one thing that will fix the Greek debt problem is reducing their borrowing costs. Just prior to Schaeble’s ill-considered demand to extend debt maturities by seven years, one year Greek interest rates were around 17%. A week later they were 30%. The effect of Schaeble’s political posturing simply worsened the problem as investors panicked.

How refreshing it is to witness Sarkozy’s quiet success in convincing French banks to rollover 70% of their Greek loans without a ripple in the market. This serves as a role model for future negotiations.

If Europe’s politicians can control their instincts over the coming months then buyers will return and Greek interest rates will fall.