Greece

Greece looks set to get a bailout, others in the EU look ready to give it one. At least that's the underlying tone expressed by the European leaders at this year's Davos.

First, Greek Prime Minister George Papandreou has rolled out a seemingly unrealistic austerity plan to bring the nation’s burgeoning deficit down to 3%( currently 12%-13%) by 2012. Yet Jean-Claude Trichet, the hawkish-sounding president of ECB, remains convinced of its feasibility, much more than his own exit strategy.

Second, talk of kicking Greece out of the EU has been unequivocally dismissed; primarily for fear of a break-down in the euro zone. French Finance Minister Christine Lagarde has made it clear that EU members are jointly accountable to each other and echoed Jean-Claude’s view that Greece stays no matter what.

Third, EU leaders worry more about the collective debt status of the region than a single indebted member. With most countries' deficits hovering around 7% in the euro zone; at 12.7%%, Greece may not seem so wild. Although Germany has announced there won’t be any bailout for EU members, when push comes to shove, rules can always be bent. Furthermore, the resultant drop in confidence for the euro is not all bad in the eye of the European's biggest economy, whose exports are given a needed breather as the home currency continues to lose ground.

Fourth, the delay of an aid brings back memories of the Dubai World crisis. So it hardly seems cynical to view it as the EU leaders’ way of telling the rascal(s) that fiscal disciplines are needed and profligacy will not go unpunished. Greece’s perennial fudging with public finances culminated last year when it shocked the EU with a drastically upward revision of its deficit. Now comes the time for the wider community to rescue a repeat offender, taxpayers must be convinced that a lesson has been learned. Increased transparency is a pre-requisite for the aid to be implemented and monitored effectively.

Perhaps most importantly, and perhaps why George Papandreou was quick to distance Greece from rumors about China’s funding, is that the EU does not want its garden grow more of Asian herbs. If two weeks of doing nothing with its 2.4 trillion foreign reserves can generate sufficient interest to cover a €25-billion obligation, then a national deficit this magnitude is really just paltry by China’s standards. But €25 billions of debt is enough to invite a Greek tragedy. The downside of having China as your creditor is that political strings are often part of the deal, especially when a rescue comes from a sovereign fund.

At a time when the euro region is being tested for its monetary strength, losing Greece to China will be strategically unthinkable. Members in the euro zone entered the crisis together and they will have to show solidarity and fight their way out together. Not least to prove to the U.S that the more humane version of European capitalism is better, but to face up to the emerging giant that’s wielding too much power around the globe.

Yet bailout brings unwanted consequences, the universal ones being moral hazard and public anger, but some are more specific to the euro zone.

Saving Greece will mean a violation of its no-bailout policy and butterfly effect on peripheral countries with ballooning debts. The former obstacle can be circumvented via a more implicit rescue package not in the same vain of Abu Dhabi's; but spooky investors scurrying away from the weaker economies will cause collateral damage within the region. Worse if it ripples throughout the rest of the world. If European leaders don’t clear the air soon enough by assuring the market what the EU’s next move will be, we could very well lose a recovery before we could even save the Greeks.