The Economist: A Greek bailout, and soon?

Mr_Mumble

The very well connected, and Europhilic, Charlemagne Notebook:

A Greek bailout, and soon?

Jan 28th 2010, 10:01

IN Brussels policy circles, the question asked about a bailout of Greece used to be: are European Union governments willing to do this? Now, I can report, the question among top EU officials has changed to: how do we do this?

Twice in the past 48 hours I have heard very senior figures—both speaking on deep background—ponder the political mechanics of how large sums in external aid could be delivered to Greece before it defaults on its debts: a crisis that would have nasty knock-on effects for the 16 countries that share the single currency.

One figure said yesterday that heads of government could not wait "forever" to take decision. That means a decision in the next few months, at most. Greece's draft plans for reducing its deficit from around 13% to 3% in three years did not seem credible, said this source. Thus a crisis loomed. "We need to help them," he said. This means "external aid" of some sort, in exchange for strict conditions

Le Monde also reported high-level talks of a bail out this morning, quickly denied by France and Germany

The legality of a bailout is highly questionable. The Economist links to this blogpost by the FT's Brussels correspondent, arguing:

The relevant section of the EU’s Lisbon treaty, which came into effect in December, appears to be Article 122. This contains two clauses. The first states that EU governments may decide to help each other out in the event of severe difficulties in the supply of certain products, above all energy. The second clause states that when 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 [of national governments], on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the member-state concerned.”

There it is, in black and white. EU governments can grant financial assistance to a fellow member-state that is in serious trouble.

The applicability of "exceptional occurrences beyond its control" seems absurd to the chief economist of the European Central Bank who said on January 6th: 'Greece's problems are decidedly Greek" and also stated "Markets are deluding themselves if they think that member states will open their wallets to save Greece". Even the words of the Greek PM today seem to rule out the legality of a bailout: Greek PM denies reports of EU bail-out

Mr Papandreou said the responsibility was Greece’s alone to put its financial house in order. He restated the government’s commitment to reduce the budget deficit by 4 percentage points of gross domestic product this year and bring it to below 3 per cent of GDP by 2012.

”We have already cut tens of thousands of jobs in the public sector, terminated contracts. We are moving now to a wage negotiation where we will be cutting public sector wages.

“We are doing tax reform and pension reform, there will be laws of the land in the next few months and they will be a very important signal; to the international markets, but also to the Greek people that their euros are not going into some black hole.”

However, all the political chatter is being overtaken by the events dear boy, events:

Greek 10-year government bonds declined for a third consecutive day, pushing the yield up 39 basis points to 7.15 percent as of 4:48 p.m. in Athens.

7.15%, for a country with the Euro! :eek:

Generali

Mr_Mumble wrote: »

7.15%, for a country with the Euro! :eek:

It does show how a 'Bond strike' can spiral out of a Government's control very quickly.

Kohoutek

Generali wrote: »

It does show how a 'Bond strike' can spiral out of a Government's control very quickly.

I hope we're not next!

Generali

Kohoutek wrote: »

I hope we're not next!

Not next but this does show that pursuing the strategy that the British Government has chosen is extremely risk.

Mr_Mumble

Greek 10 yr yields have risen 1% in the past two days and 2.75% over the past 3 months. British papers made a rather big deal about Gilts jumping 0.15% after the pre-budget report! Plenty more comment:

FT - EU signals last-resort backing for Greece

The European Union made clear on Thursday it would not abandon Greece and let Athens’ mounting debt crisis jeopardise the eurozone, even as Germany and France played down suggestions they had already formulated an emergency rescue plan.

“It’s quite clear that economic policies are not just a matter of national concern but European concern,” Jos! Manuel Barroso, European Commission president, told reporters in Brussels.

According to high-level EU officials, Greece would in the last resort receive emergency support in an operation involving eurozone governments and the Commission but not the International Monetary Fund.

However the EU in Brussels seems to be contradicting what national politicians are saying, German Economy Minister Rainer Bruederle said today:

"There should not be a collective bail-out for lopsided developments at national level,"

Of course, the Telegraph and Mail are secretly lovin' the mess:
Telegraph - Funds flee Greece as Germany warns of "fatal" eurozone crisis
Daily Mail - Dangerous weakness of EU states 'could threaten entire euro zone', Germany warns

Generali

Let's face it, it's a pretty tough electoral sell in Germany. They're basically saying that they want the voter's children to pay for deficit spending in Greece. It's not a message I'd want to be taking in to an election.

I'd want to be arguing on the other side of that one, 'Tough on Greece, tough on the causes of Greece' or something.

This looks to me like a job for the IMF.

chopperharris

Greek thing , heres an example of greek economics , tourism goes down one year they up the prices the next year ... and guess what happens?

Germany and france WILL as usual dominate the eu , basically they are already saying there will be no bailout from the eu coffers for the greeks , or is that grecians?

Its pure sabre rattling , they will let greece go to the dogs , cast them adrift from the eu membership so spain , portugal , ireland and italy and the eastern new states get the message.Means the big car makers can get more profit from making their cars in low wage eu member countries.

Doesnt help the uk govt just now neither , they quite like the quid being worth less on the continent for homelidays and exports.Euro has went up 15 percent for me on quid conversations in the last year , means i get more work on the villa for less quids....woohoo

Wookster

Well why should they bail out Greece or any of the other PIIGS?

I'm sure a weaker Euro will benefit Germany & France among other things.

blueboy43

The answer stares them in the face.

Greece should not be in the Euro.

But then again perhaps Ireland, Spain, Portugal & Italy should not be either and there lies the problem, once one goes it surely is only a matter of time before the next domino topples.

michaels

Time for the boys on here with big ones to start shorting those PIGS (and UK?) bonds?

I wonder if this ties in with the comments from a certain mr soros and an attempt to make his next trillion usd?

Generali wrote: »

It does show how a 'Bond strike' can spiral out of a Government's control very quickly.

purch

The EUR is an artificial currency.

They chose to introduce it, purely for political purposes.

They must now face the consequences of that choice.