The quandaries of borrowing

Greece is at risk of finding itself in a vacuum as regards borrowing at reasonable rates. The three paths it has to choose from are all littered with dangers. The first option is to be patient until the spreads reach 200-230 basis points and then borrow. In theory, the state is not in any urgent need of cash and can wait until late April. The problem, though, is the impact of any long-drawn-out crisis on Greek banks, which, after all, is the reason why European Central Bank President Jean-Claude Trichet has been working so hard to drum up support for Greece. The second path sees a «coalition of the willing» – countries that can help Greece to borrow, coordinated by the European Commission, at a reasonable spread that would lie between the rate it is currently paying and the eurozone average. The glitch here is that Germany does not want to participate in such a scheme, but neither does it want its peers to go ahead without it. Meanwhile, countries like Portugal would like to help, but the government cannot convince its voters that it can afford to bail Greece out at a time when it itself is struggling with debt. In other words, Greece is desperate for cheap loans but its European partners are caught up in impossible juggling acts that range from domestic issues to bloc concerns, so it is almost impossible to tell how the eurozone will react. This brings us to path No 3: the International Monetary Fund. While the terms for Greece would not be much different than if it were to borrow from Europe, such a move would signal a defeat for the Europeans, who do not like to admit that the IMF is often the only real solution. Which path Greece will eventually follow is unknown. Maybe it will be a hybrid solution, uniting both the IMF and the European Union. What we do know, however, is that this uncertainty has gone on for far too long and has deeply unsettled the markets and the banking sector, which, like it or not, are the backbone of the economy.

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