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The euphoria that followed the euro zone's decision to create a massive bailout fund worth nearly $1-trillion (U.S.) didn't last long: Sober, second thoughts have since surfaced, some suggesting the fund won't work, others suggesting that it's a bad idea.

Ed Yardeni, president and chief investment strategist at Yardeni Research, argued on Wednesday that it would have been better to simply allow Greece to default on its debt obligations, and then help out the affected banks.

With the bailout fund, all of Europe is bound together. That is hitting the euro hard and calling into question its viability. If Greece had defaulted, though, investors would have lost money, but the euro's health wouldn't have been affected.

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What's more, Mr. Yardeni believes that the Europeans were simply aping what the Americans had done with their Troubled Asset Relief Program. But that wasn't entirely successful. He explains:

"In my opinion, it worsened the resulting crisis when the Treasury quickly realized that setting up such a program wasn't practical. So, the funds were used instead to provide capital for many banks. Several of them didn't need or want the money, but were pressured by the government to take it anyway. Initially, that didn't instill confidence in the banks as fears mounted that they might be nationalized. Indeed, the S&P 500 Banking Index plunged 25.3 per cent after TARP was enacted by Congress on October 3, 2008 through the end of that year. What saved the day was the Fed lowering the federal funds rate to zero on December 16, 2008 and assurances from the new administration that nationalization was not under consideration."

However, Mr. Yardeni fails to address is the contagion issue: If Greece had defaulted on its debt, investors would have immediately focused their attention on potential defaults elsewhere, especially Spain and Portugal. And if those countries were hit by defaults, what about the U.K., or even the United States?

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