Savior For Greece – or Administrator?

Greece has been having its well-known fiscal problems, but there’s no way that it should resort to going to the International Monetary Fund for money to help out. Quite apart from some technical problems with that approach (e.g. the IMF generally tells you what to do with your monetary policy, in exchange for getting its money; as a member of the Eurozone, Greece has no control over its monetary policy), that would simply be an intolerable political gesture showing the world that the European Union is incapable of cleaning up its own financial problems.

But then what is the EU to do in light of continuing Greek fiscal weakness? Why, set up its own version of the IMF! Call it, for now, the EWF (Europäische Währungsfonds) – yes, using the German term, since it was German Finance Minister Wolfgang Schäuble who got the whole idea started with remarks he made this past weekend. But the idea was further endorsed (at least in a vague way) yesterday by the EU’s man-on-the-spot Olli Rehn, the new EU Commissioner for Economic and Monetary Affairs. For now, it is still nothing but an idea, but that also means it can go in any of a number of directions, something pointed out in the very title of an analysis in the German commentary newspaper Die Zeit: The Fund can be a savior or a bankruptcy-administrator.

It was notable in the first place that this suggestion initially came from no less than the finance minister from the EU member which would be most called-upon to pay the bill for any Greek rescue. Ultimately, Schäuble would just like the Greek problem to go away, but that is not likely to happen, even despite the success that government recently had in raising €5 billion more from international investors from yet another loan-issue. Greece will continue to need much more money in the near future, despite its recently-announced austerity measures, and as things stand now there in fact is no EU institutional framework for addressing problems such as this. As has often been remarked lately, the Maastricht Treaty that lay the legal groundwork for the euro even would seem to forbid bailing-out fellow eurozone members. In any case, there certainly are no guidelines in place for dealing with the mess that would result from any Eurozone member going bankrupt and renouncing its debts.

In the meantime, though, the article notes that the EU’s method so far for dealing with the problem has been confined mainly to the issuing of declarations that Greece will never be left in the lurch, but without getting any money together or taking any other practical measures to put action behind the words. Soon, this won’t be enough anymore; “Europe must make a stand” the article demands.

Clearly, this proposal for an EWF is the first, important step forward. Will it be an administrator, i.e. cleaning up the mess after first letting states go bankrupt, or will it mainly be engaged in providing the collective financial resources needed to save them from bankruptcy in the first place? And what powers to demand information and otherwise intrude in the policies of the states it sets out to assist will it demand? Is this the first step towards greater EU-level control over member-state fiscal policies? Or, indeed, will anything come of this proposal at all? (Which, if not, would ultimately mean that – no matter what you might have been led to believe – no, EU member-states are not their brothers’ keepers.)

UPDATE: In Der Spiegel Ann Seith weighs in with her contribution to the subject: Economist reject Schäuble’s monetary fund idea. Yes, economists from major German banks whom she polled about the proposed EWF are solidly against it, but mostly from the standpoint of “Greece shouldn’t have gotten itself in fiscal trouble in the first place!” But esteemed gentlemen: the girl is already pregnant, it’s too late for such moral pronouncements!

Ms. Seith also makes the valuable point that this EWF proposal in and of itself marks the final collapse of the “Stability Pact” policy which was the Eurozone’s original measure aimed at ensuring that grave fiscal problems (like we now see in Greece, Spain, Portugal, etc.) with the potential to threaten the single currency itself would never arise. If you’re not familiar with Stability Pact, I’ve written quite a lot about that on this blog through the years and that link back there leads you to the tag that gathers all of those blogposts together. You’ll discover that the Stability Pact lost any credibility it had quite early.

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