12 Whitehead J. Dipl. & Int'l Rel. 43 (2011)
Why the Greek Meltdown Became a Euro-Zone Crisis

handle is hein.journals/whith12 and id is 233 raw text is: Why the Greek Meltdown Became a Euro-
Zone Crisis
by Hartmut Fischer, Elliot Neaman, and Shalendra D. Sharma
in late April 2010, the spread between Greek and German 10-year bonds
skyrocketed to 650 basis points. By the first week of May 2010, the interest rate on
Greek bonds jumped to an unimaginable 38 percent, and default seemed imminent.
In desperation, on May 10, after weeks of indecision, the European Union unveiled
a plan to deal with Greece's growing sovereign debt crisis. As the Economist aptly
noted, the euro-zone leaders were forced into action when faced with their own
Lehman moment, the frightening prospect of fiscal contagion as Greece
defaulted; thus forcing the sovereign-debt crisis to spiral out of control, engulfing
not only Portugal and Ireland, but also much larger economies such as Spain and
Italy.' Euro-zone negotiators put in long hours over the weekend of May 8 and 9
2010 to produce an unprecedented package of 750 billion (US$950 billion) in hopes
of restoring confidence in the embattled euro and mitigate the financial panic
gripping the continent.2 The European Commission's president, Jose Manuel
Barroso proudly announced that the package confirmed that the euro zone members
would take action to defend the European Union. The International Monetary Fund
(IMF) committed an additional $321 billion, and the world's leading central bank, the
United States Federal Reserve, announced a joint intervention to make more dollars
available for interbank lending, further underscoring the commitment of the key
players in the global community to ensure the euro-zone's financial health. United
States President Barack Obama, German Chancellor Angela Merkel, and French
President Nicolas Sarkozy made it abundantly clear that they would restore investor
confidence in the euro-zone.
The audacious $1 trillion plan worked - or in Merkel's evocative phrase, the euro
passed its existential test. The markets, seemingly desperate for a bold plan, finally
got what they wanted.3 Just hours after the deal was announced, the European
Central Bank (ECB) reversed its position and began to buy euro-zone government
and corporate debt.4 In doing so, the ECB suspended its collateral standards to
Hartmut Fischer is professor of economics at the University of San Francisco.
Elliot Neaman is professor of history at the University of San Francisco.
Shalendra D. Sharma is professor of politics at the University of San Francisco. The authors
thank Jacques Artus for providing sorne of the data used in this paper. Artus was deputy chief for
Europe at the IMF when the euro was created. They take responsibility for any errors.
43
The W/hitehead Journal of Dyomacy and International Relations

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