Greece: Statement by the Heads of State or Government of the European Union
Below is the text of the brief EU statement on Greece debt crisis.
All euro area members must conduct sound national policies in line with the agreed rules. They have a shared responsibility for the economic and financial stability in the area.
In this context, we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met. We call on the Greek government to implement all these measures in a rigorous and determined manner to effectively reduce the budgetary deficit by 4% in 2010.
We invite the Ecofin Council to adopt at its meeting of the 16th of February the recommendations to Greece based on the Commission’s proposal and the additional measures Greece has announced. The Commission will closely monitor the implementation of the recommendations in liaison with the ECB and will propose needed additional measures, drawing on the expertise of the IMF. A first assessment will be done in March.
Euro area Member states will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole. The Greek government has not requested any financial support.
As I said in the links, the approach seems to be long on psychological and political support and short on specifics or financial aid. In theory, there will be loans in exchange for austerity. Details are to come. But the euro has sold off on the news. Moreover, as this is a debt crisis, not just a crisis of confidence, I don’t think ‘”psychological and political support” is going to cut it.
“Moreover, as this is a debt crisis, not just a crisis of confidence, I don’t think ‘psychological and political support’ is going to cut it.”
Since the experience of Greece would seem prototypical, and since all that seems forthcoming from, say, Germany and France, is this political support you cite, what would you see for a prognosis here? Hostile internal political reactions have already formed and there is a long history of resort to strikes and mass demonstrations in Greece. The present government appears weak and incompetent and clearly has been left to twist in the wind. I’m completely unfamiliar with the domestic Greek political environment but is there a chance of a failure here leading to the ascendance of totalitarian parties?
Greece has always run large deficits and used its currency and inflation as a way out. Now that they have the euro, this is a problem. Moreover, tax dodgers of the Argentinian variety make capital flight a risk to the banking system. This much is clear.
So, you have a moral hazard here, but the risk of financial meltdown – a case very similar to what we saw with Lehman and Bear Stearns in the U.S. At this point, it is pure conjecture what will happen. The pressure to not bail out in Germany is large. But the willingness of the socialist government to take on the harsh austerity measures of the Irish or the Spanish or the Latvians for that matter is very questionable.
I anticipate more dithering to buy time because the Germans want to see what the Greeks do to show they are serious. At some point events will force a reaction. But, again, what reaction, I can’t say.
Does the Maastricht treaty allow the EU or member nations to support a country with a debt crisis? I thought Maastricht only allowed assistance when there is a crisis.
The EU’s no bailout rule in #Greece is in Article 103, section 1:
The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.
But, as you mentioned, in crisis, there is a superseding section, Article 100, section 2:
Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.
So that’s where we are now.
The key phrase is “exceptional occurrences beyond its control”. No one forced the Greek state to issue debt. If I were a German I would be upset to say the least. Perhaps this is showing that there is no monetary union without fiscal union as well.