Eurozone leaders convened on Friday, 7 May 2010, right after the Eurogroup had agreed on the Greek rescue package and the Greek parliament had voted on all the required measures. It was a meeting meant to give its final blessing to the Greek rescue package and declare the crisis over. It would end up having to do much more than that.

After a short respite in the markets on the day of the Eurogroup agreement earlier that week, Greek ten-year bond yields had reached 12 per cent. This was despite the fact that the ECB had suspended minimum credit ratings for its collateral rules “until further notice”, allowing it to continue accepting all titles issued or guaranteed by Greece as collateral. In this way it could continue funding the country’s banks, which all held substantial Greek debt, and in one fell swoop had effectively cancelled the impact of any further downgrades by the credit rating agencies.

As significant a move as this was, the crisis was no longer contained to Greece. Spreads in Portugal, Ireland and Spain had reached levels similar to the ones that had prevented Greece from accessing markets one month earlier. Interbank lending between European banks had almost ground to a halt, pointing to an acute systemic crisis in the making. Therefore, by the time they assembled for the Euro Summit, eurozone leaders knew that what was at stake was the integrity of the entire eurozone. Overwhelming action was needed to avert catastrophe, over and above what was done for Greece.

When borrowing spreads in the European periphery and in particular in Greece had started climbing in the beginning of 2010, the eurozone had failed to act in time. By the time it did, markets were looking for something broader: a backstop – a guarantee of no default for eurozone members – which would reduce risk across the currency union. Due to political pressures in eurozone countries, however, as well as a lack of understanding of the true systemic nature of the problem, and fears of moral hazard, this safety net had taken too much time to materialize.