Is Merkel getting her way?

Below, courtesy of the Telegraph, is a leaked copy of the draft proposals on managing the Greek debt crisis.There are no measures to reduce Greece’s debts to sustainable levels; subsidy is the preferred route. This will presumably hit German taxpayers the hardest, but Merkel has managed to obtain private sector involvement, a clear German objective in these discussions. 

However, this course is likely to lead to Greece’s selective default as creditors buy back bonds. The European Central Bank has declared that it is happy to allow this and will continue to accept government bonds in the event of sovereign default. This is a major retreat from its earlier position and commentators are clear that the Eurozone is now flirting with contagion. Measures are being prepared to deal with that eventuality. Point 7 on the agenda emboldens the EFSF (the euro’s emergency bailout fund) to intervene in markets in order to recapitalise banks in the event of default on sovereign debts.