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Has Europe Used up Its Ammo on Greece?

For now, Greece has been saved but at what cost? The sums involved are staggering and could have been much lower if the euro zone's governments had appreciated the size and scale of the problem earlier and learned the lessons of history.

By waiting for the 11th hour to agree a rescue package, they have not only left Athens with a bigger problem to solve, they also risked more of their own electorates' money and given the financial markets more than a little to think about when it comes to the long-term commitment the region has to its weakest members.

While Greece may not have to raise money in the bond market for two or three years, investors still have no shortage of other targets to choose from. If the purpose of the Greek rescue package was to avoid contagion, then its impact will be short lived, very short lived.

That's because the scale of the 110 billion euros ($144 billion) package that Athens has taken raises questions about whether it is repeatable elsewhere.

Has greedy Greece used up all the ammunition that German politicians are prepared to fire in order to protect the euro? If the answer is yes then Portugal, Ireland, Spain and the euro itself are on their own and look extremely vulnerable.

Indeed, while there will be a short-lived post-rescue honeymoon period, its duration is likely to be measured in only a few weeks. When the penny (or cent) drops that there is no more money, then ferocity of the reaction from the markets will be truly shocking.

In the meantime, with yields coming down, debt management offices around Europe should act swiftly and raise money while they can.

Debtor Nations
Debtor Nations

Even if another crisis can be averted, the euro zone is likely to be a pretty miserable place for years to come. The pain that is being forced on Greece will have to be taken voluntarily by other countries if they want to keep the bond vigilantes off their backs.

Does the political will exist to do this or will it have to be imposed externally by the IMF, Brussels and the ECB? This will be a question the markets will be looking at very closely.

My own view is that this weekend's action to save Athens is far from the final act in this tragedy. While the pace may be about to slow, Euripides would not have left the action here and neither, I suspect, will the financial markets.

Contact Europe: Economy

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