Greeks Out! Drachma Back!

I have to assume that my Euro-savvy readers will be quite aware of the growing financial crisis involving the euro and the so-called “PIIGS” countries that are in fiscal trouble (“Portugal, Ireland, Italy, Greece, Spain,” though these days Italy is usually left out). Greece is at the center of attention now, and the main issue when it comes to its fiscal problems – combined with its government’s dishonesty in reporting these in the past – seems to be the conflict between the emotional impulses to bail it out from EU or European Central Bank funds or punish its sins instead by simply letting the country suffer. The EU summit in Brussels on Thursday (11 February) is shaping up to be decisive in deciding which way things will go – assuming that the assembled EU heads of government discuss the problem in the first place, as I understand that that is not really on their formal agenda!

The dominant EU country within the governing structures of the EU and the European Central Bank is of course Germany, which is also the main economy in an opposite fiscal situation to that of the PIIGS states and so theoretically able financially to provide much of the aid that Greece needs. That is why it has been interesting to read coverage of this problem in Die Welt, the mainstream German paper not quite as authoritative as Die Zeit (and the latter is more of a pure opinion-publication anyway), but still with a respected reputation as a daily that is distributed nationwide.

Given that, it surely must be of particular note to see a commentary piece there, by Jörg Eigendorf, explicitly calling for Greece simply to leave the Eurozone. He dismisses the Growth and Stability Pact which was supposed to undergird the euro (by requiring budget deficits of no more than 3% of GDP, total government debt of no more than 60%) as a “paper tiger,” which it indeed showed itself to be as early as eight years or so ago, when both Germany and France violated that 3% limit an encountered no punishment at all. Anyway, given that the Greek budget deficit now is to the north of 10% of GDP, getting that down to anything close to 3% in any short time-frame is clearly unrealistic without revolution in Greek streets. So it’s time for the Greek government to reintroduce the drachma, i.e. to leave the euro, in order to achieve the currency devaluation that the country needs to get its economy back on track. The only alternative, Eigendorf writes, is “to make the entire Eurozone step-by-step a weak currency area, that imposes the burden of the irresponsible policies of individual states on all its taxpayers.”

That’s clearly an argument for simply letting Greece suffer. And Eigendorf’s judgment is echoed in the reporting in another Die Welt article, by Christoph B. Schiltz: Finland demands harder punishments for euro-sinners. The Finnish finance minister, Jyrki Katainen, also takes a hard line: “It would make sense to reform the Stability Pact so that countries are severely punished when they report their debt-status falsely, for example by high fines which would have a deterrent effect.” Katainen also rules out any intervention by the International Monetary Fund, adding “The Greeks now have no other choice: they must help themselves by paying off debts and financing state expenditures. I exclude categorically any help for Greece from the other countries of the Eurozone.”

And yet . . . another article has popped up on the Die Welt site that Germany, at least, is prepared to take measures to assist Greece financially after all. This one is actually a derivative piece, pointing to a recent article (with an “Exclusive” tag) to be found in the Financial Times Deutschland (Help for EU-Land: Berlin wants to save Greece). Calling the development a “spectacular turn-about,” a trio of FTD journalists (from the paper’s Berlin and Brussels offices) report from sources within the German government how “both bilateral help [i.e. direct German-to Greek] as well as an internationally-agreed procedure at the EU level are under discussion.” Further details are to be worked out on Wednesday, meaning within the German government, but it’s interesting that language in this article compares (and thereby justifies) helping the Greek government out with the bail-out the German government felt it had to do last year with the struggling Munich bank Hypo Real Estate. Then, on Thursday, the Germans will present their proposals at the EU summit, and we go on from there. This article reports that the price of the euro has already rebounded sharply on the news.

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