In the year and a half that has passed since Greece revealed
after years of lies and cover-ups, the terrible state of its public accounts is many myths, taboos, that the European leaders have had to drop to try to take the reins of the crisis and avoid a major disaster for the whole of the eurozone. It is possible that they have to drop some more to defuse definitely the time bomb in which Greece has become for the common currency.
Denial of the evidence The first reaction of the EU, led by Germany, was to deny the magnitude of the crisis that was coming upon it: markets exaggerated and conspired against the euro and the PIGS (Portugal, Ireland, Greece, and Spain) for reasons almost always unjustified. Do not “overestimate” the problem, said German Chancellor Angela Merkel; “There are also deficits in other parts of the world.” It was not until February 2010, several months after Athens revealed its huge budget hole when the EU admitted that not only the stability of Greece but of the eurozone as a whole was at stake.
A rescue? Impossible! The resolution of the crisis was hampered in the first place by the persistence of a taboo: the EU treaties prevent the rescue of their debts from their countries. And this is indicated by a clause imposed by Berlin when the euro was designed, but that is what community jurists are for, always capable of finding a fissure and a legal solution to any problem. An unknown article of the Treaty of Lisbon designed for exceptional circumstances gave the necessary coverage to launch the first rescue operation in the history of the euro, in May 2010, and create a rescue fund until then nonexistent.
The humiliation of the IMF Another taboo that had to fall to help Athens was that the International Monetary Fund could not intervene in the crisis. It would be a humiliation for Washington to come to the rescue of the euro, those days were said in Brussels and in Paris. But someone had to monitor the application of the austerity plan to which the loan was conditioned. And Berlin did not believe in the management capacity of European doctors, the same community officials who for years believed the Greek figures. When Nicolas Sarkozy understood that the only way for Merkel to accept rescuing Greece was to implicate the IMF, he put aside his European pride and capitulated.
The role of the ECB While, in May 2010, the eurozone and the IMF granted Greece a loan of 110,000 million euros, another myth fell quietly: that the European Central Bank could not intervene in the secondary debt markets for ease the pressure on Ireland and Portugal. Finally, he pulled out the checkbook. It is considered in fact that this has been one of the most effective measures to contain the crisis. The ECB was no longer in a situation of inferiority with respect to the US Federal Reserve or the Bank of England, which did carry out this type of operation. In the case of Spain, it also helped to relax the pressure of the markets the turn of 180 degrees of the government in economic policy, to be forced by the EU to save 15,000 million euros more than expected in 2010 and 2011.
A bottomless rescue Days after rescuing Greece, European leaders took another step
they had always rejected: creating a common fund for financial emergencies, conditioned by harsh austerity plans (to avoid abuses). A dramatic nightly and Sunday meeting of the Eurogroup led to the opening of the Tokyo Stock Exchange, the European Financial Stability Fund, a reserve of 750,000 million euros, contributed by the partners of the eurozone, the European Commission and the IMF. Why that number and not another? First to make it clear that it would be enough to rescue one of its great countries and not just the smallest ones. And also because in dollars the figure sounded good: one trillion dollars, repeated the international agencies shocked.
Towards a transfer union? The possibility of the European monetary union accruing in a union of transfers or subsidies, in which the rich countries keep the poor and bear their debts, has always aroused a huge rejection in the north, especially in Germany. Unless you resort to more radical solutions to tackle the crisis, it is very possible that this taboo will eventually fall (if you have not already done so).
Greece’s rescue operation will not be completed in 2013, as expected. After 15 months since the granting of a loan of 110,000 million euros to Athens, the governments of the eurozone are resigned to give it another to support the country at least until 2015. And it is highly likely that it will be necessary to extend the aid for some years plus. Will Ireland and Portugal follow the same path? Whether through loans or direct aid to stimulate the economy, experts are convinced that this is one of the most plausible scenarios for the future of the eurozone.
Nein to Eurobonds? The idea that eurozone countries issue common debt bonds is “intellectually attractive” for many EU politicians and especially for the governments of the European periphery. However, he has never seduced Germany. Why, at the cost of cheapening the bill to countries in a worse budget situation, would you be interested in paying more because of your own debt issues?
The initiative reappears periodically in European debates, with little fortune: Germany continues to say nein. Even when? “Putting bad and good in the same basket would be disastrous. They will arrive, but only when all economies are straightened out,” a European leader ventures privately. In fact, the European Financial Stability Fund may already be the embryo of the future European debt agency.
Will a euro country go bankrupt? And if everything fails? The loans, the austerity plans, the reforms … The objective that the anti-crisis strategy improvised by Europe is no other than to avoid at all costs that one of its partners declare itself insolvent. The dollar can afford a bankruptcy, but not a monetary union as young and sui generis as the European, it is said. In addition to prestige, a suspension of payments could take ahead to the interconnected European financial sector, with effects on the other side of the Atlantic, as the White House seems to fear.
However, the economists are practically unanimous in their verdict: sooner or later Greece will end up declaring itself insolvent, the weight of its debt is unsustainable. It is known that the Greek government has flirted with the idea. For now, the EU has dissuaded him. But the effects of the austerity plan have yet to be seen. The countries of northern Europe are beginning to tire of paying for the excesses in the south. The crisis tightens, the pressure on the streets of Athens does not stop and the opposition seems more interested in making the government fall than in stabilizing the country’s finances …
Will it restructure the European dike? With what consequences? The taboo of bankruptcy, of falling, will be the last to do so. At this point of the crisis do the unthinkable (remove a country from the euro, contain the damage …) would be the least of the problems of Europe.