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The EU’s Rules to Default By

Greece’s troubles with its ballooning public debt are again throwing Europe’s financial markets into turmoil, because the entire regulatory framework for the financial system was built on the assumption that government debt is risk-free. We now know that it is not, though EU regulators are still encouraging banks to take on as much of it as they want.

BRUSSELS – Greece’s ballooning public debt is again throwing Europe’s financial markets into turmoil. But why should a debt default by the government of a small, peripheral economy – one which accounts for less than 3% of eurozone GDP – be so significant?

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