Press

"The country's political elite is still wedded to the European project even though Germany is no longer willing to pay over the odds to make European compromises possible," said Katinka Barysch, an analyst at the London-based Centre for European Reform think tank, in a research note. "The risk is that the Greek crisis brings a latent sense of frustration and disillusionment with the EU to the boil", she said. "It is hard to see how the EU could make progress on anything ...

"Trichet is a diminished figure," said Charles Grant, director of the Centre for European Reform think tank…. Grant said the decisions did nothing to resolve the economic fundamentals of European weakness and imbalance. "Southern Europe will be stuck in a vicious circle of deflation and recession for many years."

"It shows that they're serious, despite all the squabbling," said Charles Grant, director of the Centre for European Reform...."All this has highlighted the strains between Berlin and Paris," said Grant. "The big loser is the Franco-German relationship."

"There are going to be many years of pain in southern Europe, this is just the beginning," said Charles Grant, the director of the Centre for European Reform in London. "The underlying cause of the crisis, which is the lack of competitiveness in the southern European economies, has not gone away. It's very hard to see how the crisis will lift for up to five years because the competitiveness issue is so serious."

But the problem is more fundamental, said Simon Tilford, chief economist at the Centre for European Reform in London. "Most of the time, the gap between European rhetoric and reality is just an annoyance," he said. "But that gap is simply lethal when it comes to the euro." Instead of attacking markets and forming a new European agency, "the leaders need to focus on the issue that is driving the markets: the dire growth prospects for the southern rim" of the eurozone, meaning Greece, Portugal, Spain and even Italy.

"Leaders must find a way of preventing the crisis in Greece spiralling out of control, prevent it from bankrupting Greece and prevent it from spreading to the other eurozone countries. Because if it does, it will quite possibly lead to the unravelling of the eurozone," says Simon Tilford, chief economist at the CER. "That would be terribly damaging for Europe, for the EU and the political fall-out would be enormous."

Katinka Barysch, of the CER, said that that realization had hit home in Germany. "It might be unpopular for the Germans and Europeans to bail out Greece, but it will be even more unpopular for them to bail out the banks that owned Greek bonds… If growth stays negative or low in Greece, the fiscal debt will continue to increase, whatever they do," Ms Barysch said, while difficult structural reforms to liberalise the economy will take time. The economists she speaks to "don't really see a solution for Greece in the longer run," she said. …Greece is functionally bankrupt, Ms Barysch said.

As Hugo Brady, an analyst with the Centre for European Reform, said this week: "The EU tried for 10 years on the basis of peer review to make structural changes to the EU economy and no one really listened… Now that simple message might get through."

Alogoskoufis and Papantoniou were joined in a panel discussion by Wim Koesters, a professor at the Ruhr University in Bochum, Germany, and Simon Tilford, chief economist at the CER. "The point really now is about the degree of default, not whether there is going to be one," Tilford said. In the long term, in the absence of a common euro-region budget policy, "then I think we will see ongoing crises and a managed dismantling of the eurozone."