Harvard’s Ken Rogoff: It’s an ‘Illusion’ to Think Europe’s Crisis is Over

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“Financial markets breathed a sigh of relief after the agreement by European leaders for a second bailout of debt-burdened Greece. But the continent’s crisis is far from complete, many experts say. Star Harvard economist Kenneth Rogoff is one of them.

“I don’t want to be a Cassandra, but the idea that it’s over is an illusion,” he tells The New York Times.

“I am amazed by the short-term psychology in the market. I don’t think we’re anywhere near the endgame.”

The idea that Greece can be starved into prosperity would seem laughable to an objective observer. And the idea that Greece will follow through on the severe austerity it has promised, when it already faces riots in the street for previous cutbacks, also seems a bit of a stretch.

In addition, Greece’s private creditors who are expected to agree to a loss of more than 70 percent on their government bond holdings may not suffer their losses quietly.

Some of the International Monetary Fund’s debt projections for Greece appear to be taken out of thin air. “This whole debt sustainability analysis is a joke,” international economist Charles Wyplosz tells The Times.

European leaders are hoping that the Greece bailout will act as a firewall to prevent the crisis from intensifying in Portugal, Ireland, Spain, and Italy. But it looks more like this will just postpone the day of reckoning.”