Last week taught us something important about the political economy of the eurozone.
There were two serious and overlapping crises. The first was a deteriorating dispute between Germany and the European Central Bank. It was about whether private investors should be forced to pay a contribution to the next loan programme for Greece. The dispute promised to derail the discussion for a follow-up loan, and could have forced Greece into a default. The second crisis was the near-collapse of the government of George Papandreou, Greek prime minister.
At the end of the week, Germany capitulated. And the Greek prime minister reshuffled his cabinet, ending up with with more reformers in it than before.
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