David Prosser: Moving into the eurozone endgame

Outlook Into the lion's den came George Papandreou. That the Prime Minister of Greece was in Germany singing for his supper yesterday while his own parliament was debating the latest austerity measures he proposes spoke volumes. Mr Papandreou rightly decided his priority should be to seek to persuade Germany that Greece is serious about meeting its commitments – both for the sake of Greece itself, which needs its next slice of bailout cash, and for Angela Merkel, the German Chancellor, who will tomorrow ask her own sceptical parliament to ratify the deal agreed in July that was supposed to end the eurozone crisis.

Had the Greek Prime Minister sneaked a look at the stock markets, where the eurozone's woes wiped billions off share prices last week, he might have allowed himself a rare smile. For European equities enjoyed their best day since May 2010.

Sadly, of course, it was an illusion. Stock markets did not rise yesterday because Mr Papandreou has finally succeeded in persuading them that Greece will not default on its debt, but because there is a sense that the eurozone's leaders are finally beginning to accept the inevitability of default and planning their response.

Not that one would take that message from the pronouncements made by many of the leading players yesterday. Finance ministers in Spain and Germany gave short shrift to suggestions the European Financial Stability Fund is about to be hugely increased in size. Even ECB officials suggested estimates of the increases on the table were being overblown.

Note, too, that away from the stock market, there was little respite in the crisis. Spain and Italy again had to pay through the nose to get bond auctions away, while safe-haven assets attracted support alongside equities.

Still, we are now approaching the endgame. Officials have not sought to knock down the idea that the Greek default will involve a 50 per cent haircut. We will get a deal on bank recapitalisation. And the EFSF will grow. None of these things will happen because the stock market demands them or even because Germany has shifted policy. It is simply the realisation that they are the only options left.