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Greece in distress: rescued by the EU?
Topic tags
OpinionsA COUPLE of weeks ago, I wrote an article for this newspaper arguing that the economic problems of Greece and the danger posed to the eurozone by a default on Greek national debt may paradoxically strengthen co-operation within the EU.
Since then, Greece has come under intense international scrutiny and Prime Minister George Papandreou has been trying hard to persuade foreign investors and the EU that Greece will put its house in order and reduce its government deficit and public debt.
Greece cannot live beyond its means. It is clear that public spending will have to be cut, taxes will have to be raised and wages will have to decline. The EU has approved the Greek austerity measures. What is less clear is what the EU can do to help, apart from monitoring the implementation of those measures.
The EU and its member states have to perform a fine balancing act. On the one hand, they have to be tough on Greece. It has flouted EU rules in the most egregious manner. It has persistently provided misleading data to the European Commission and has qualified to enter the eurozone on the basis of false information. On the other hand, Member States cannot stand idle and watch Greece go bankrupt. Investor confidence in other indebted countries will collapse. The EU surely wants to avoid a domino effect on Portugal, Spain and Ireland.
The problem is that the EU Treaty formally prohibits EU institutions and member states from taking over the debt of any government or public authority. Article 125 of the Treaty is unequivocal: “The Union 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”. The same prohibition applies to individual member states. So it is clear that the EU will not bail out Greece.
However, the second paragraph of Article 122 suggests something else. It provides 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, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.”
For sure, the Greek economic problems, administrative weaknesses and pervasive political interference in its statistical services are not the result of natural disasters. But it can be argued that its economic predicament has been exacerbated by the financial crisis. Article 122 has not been used before so no one knows really how to interpret it.
Is the Greek situation caused by the financial crisis or merely aggravated by it? At any rate, it appears that although the EU may not bail out Greece, it can help it, possibly, by extending a large loan.
However, it is unlikely that such a loan will be given any time soon. It will be only the last possible measure to be granted in case everything else fails.
It is impossible to know precisely how this sorry story will unfold, but there are four fairly certain outcomes. First, Greeks will have to go through a painful period of austerity. This is the unavoidable consequence of losing competitiveness when you do not have the option of exchange rate depreciation. Cyprus, whose productivity rate underperforms those of its eurozone partners, should also take note.
Second, Greece is unlikely to leave the eurozone. If it does, its euro-denominated debt will balloon out of any manageable proportions.
Third, Greece is even more unlikely to be expelled from the eurozone. A recent paper by a lawyer working for the European Central Bank has argued that other eurozone members do not have any legal means of getting rid of indebted countries.
And, fourth, collective oversight of EU economies will be strengthened. In order to prevent a repeat of the problems caused by the false statistics provided by Greek authorities, the Commission has already made proposals for closer management of statistical information and monitoring of national economies.
So, the concern of eurosceptics that the single currency is the thin edge of further integration is proving to be correct. But of course, they are absolutely right. You cannot deal with an issue of common interest, like money, without having adequate common rules and procedures. Even if other countries avoid economic contagion, they will still be affected: their discretion to manage their economies will be more constrained and their policies will be more systematically evaluated. That is the price that everybody will have to pay for what has happened in Greece.
- Phedon Nicolaides is Professor at the European Institute of Public Administration, Maastricht (The Netherlands)

Mike from Australia comments:
Sure Greece is in distress interestingly enough so is Italy, Portugal and Spain. It is only as matter of time and Turkey will also be joining the ranks of the distressed.
thomas comments:
E REZA
Phedon Nicolaidis
lives on the planet of the slaves run by the bankers, you from outer space or the same solar system?
THIS IS THE PRICE THE WORLD HAS TO PAY FOR ALLOWING THE GREEDY BANKERS TO TAKE OVER and a natural progression: you have ALL the money u want in Trillions it loses its meaning after all u can print all the money u wish for, But it means FA, next thing total world domination power over EVERY living being on earth can't get higher than that Get it?
n its coming if they manage to overcome Russia as Jesus said B4 the end of this system men will walk round yellow with Fear How righr everything He fortold is turning out to be
thomas comments:
Lawrence from Arnold
have the bankers Not take away the right of citizens to hold Gold? or am i wrong? the only Gold we can buy is in jewelery $100 jewelery=$10 gold try to buy silver: yes sir of course how much u meed to buy 1 LB? send us the money we'll send u the certificate how many others ON the same silver i own? can u send me the silver?
u mad Not on u r life just like the goldsmiths in middle ages London ppl took their gold to them for safe keeping n whre givern certificates the start of paper money so in the end it was many IOUs in circulation But the real value was in the banker's vaults same today Just try n buy Real gold or silver NOT ON PAPER U NOT ALLOWED U WONT BE GIVEN IT JUST AN IOU what good is that in a real crise? maybe the bankers are right ppl are so stubid they deserve what bankers do to them
thomas from UK comments:
one thing i like to know if anyone is willing to answer with honesty usa owes trillions UK owes Franse owes in fact Most countries are in dept up to their eyebrows WHO DO THEY OWE all this money to? exceept for china n japan all other countries owe china had over 1.3 Trillions of $US they cannot offload them as their $reserves will fall like a ton of bricks
Apart from russia who OWNS its cantral bank printing money based on real reserved backed by the Russian Gov n the Swiss Frank all them countries they must owe all this to the IMF "World bank" how did this come about almost all countries owing to the few international bankers?
would that have anything to do with the fact that no matter whatn how much a country produces when they sell their goods they re paid in paper money printed by Private bankers who's money is based of FA but thin air? all they have to do is prits few more billions n all most of your hard work n produced they robbed from you
this's got FA to do with economics just common sense but as they OWN most politicians in Key countries the world is their slave
have u seen the video THE MONEY MASTERS? the Federal Reserve ITS not Federal its got NO reserves itprints money at Will outside ANY Gov, control was voted 23rd Dec 1913 when all congressmen went home for Xmas 2 Bribed congressmen voted for it the US put $20M to start the bank banks are allowed to loan 10X the money they have the Fed directors "loand" themself $200M n "bought 90% share with FA US gov $20M 10% as resident Wilson said the start of the Greatest deception in Human history committed by the bankers against My country My PPL
why is anyone suprised all countries who's central banks are OWNED by international bankers are broke for? is this world full of idiots?
Henry Ford said its good americans do Not understand our criminal banking system for if they did it be a revolution by the morning Pr Jefferson Only by educating the public can we guarantee out future freedom JFK said he had plans to dismantle the Fed 10 days later He was dismantled by the bankers so was A Lincon n Jefferson
3 Great US statesmen this world is a joke man
thomas from UK comments:
one thing i like to know if anyone is willing to answer with honesty usa owes trillions UK owes Franse owes in fact Most countries are in dept up to their eyebrows WHO DO THEY OWE all this money to? exceept for china n japan all other countries owe china had over 1.3 Trillions of $US they cannot offload them as their $reserves will fall like a ton of bricks
Apart from russia who OWNS its cantral bank printing money based on real reserved backed by the Russian Gov n the Swiss Frank all them countries they must owe all this to the IMF "World bank" how did this come about almost all countries owing to the few international bankers?
would that have anything to do with the fact that no matter whatn how much a country produces when they sell their goods they re paid in paper money printed by Private bankers who's money is based of FA but thin air? all they have to do is prits few more billions n all most of your hard work n produced they robbed from you
this's got FA to do with economics just common sense but as they OWN most politicians in Key countries the world is their slave
have u seen the video THE MONEY MASTERS? the Federal Reserve ITS not Federal its got NO reserves itprints money at Will outside ANY Gov, control was voted 23rd Dec 1913 when all congressmen went home for Xmas 2 Bribed congressmen voted for it the US put $20M to start the bank banks are allowed to loan 10X the money they have the Fed directors "loand" themself $200M n "bought 90% share with FA US gov $20M 10% as resident Wilson said the start of the Greatest deception in Human history committed by the bankers against My country My PPL
why is anyone suprised all countries who's central banks are OWNED by international bankers are broke for? is this world full of idiots?
Henry Ford said its good americans do Not understand our criminal banking system for if they did it be a revolution by the morning Pr Jefferson Only by educating the public can we guarantee out future freedom JFK said he had plans to dismantle the Fed 10 days later He was dismantled by the bankers so was A Lincon n Jefferson
3 Great US statesmen this world is a joke man
thomas from UK comments:
one thing i like to know if anyone is willing to answer with honesty usa owes trillions UK owes Franse owes in fact Most countries are in dept up to their eyebrows WHO DO THEY OWE all this money to? exceept for china n japan all other countries owe china had over 1.3 Trillions of $US they cannot offload them as their $reserves will fall like a ton of bricks
Apart from russia who OWNS its cantral bank printing money based on real reserved backed by the Russian Gov n the Swiss Frank all them countries they must owe all this to the IMF "World bank" how did this come about almost all countries owing to the few international bankers?
would that have anything to do with the fact that no matter whatn how much a country produces when they sell their goods they re paid in paper money printed by Private bankers who's money is based of FA but thin air? all they have to do is prits few more billions n all most of your hard work n produced they robbed from you
this's got FA to do with economics just common sense but as they OWN most politicians in Key countries the world is their slave
have u seen the video THE MONEY MASTERS? the Federal Reserve ITS not Federal its got NO reserves itprints money at Will outside ANY Gov, control was voted 23rd Dec 1913 when all congressmen went home for Xmas 2 Bribed congressmen voted for it the US put $20M to start the bank banks are allowed to loan 10X the money they have the Fed directors "loand" themself $200M n "bought 90% share with FA US gov $20M 10% as resident Wilson said the start of the Greatest deception in Human history committed by the bankers against My country My PPL
why is anyone suprised all countries who's central banks are OWNED by international bankers are broke for? is this world full of idiots?
Henry Ford said its good americans do Not understand our criminal banking system for if they did it be a revolution by the morning Pr Jefferson Only by educating the public can we guarantee out future freedom JFK said he had plans to dismantle the Fed 10 days later He was dismantled by the bankers so was A Lincon n Jefferson
3 Great US statesmen this world is a joke man
E.Riza comments:
Dear Lambouin
I am not sure on which planet you live but for sure the first to use creative accounting were the French and then the Italians mastered the art. The Greek problem has been reported in the Greek, and foreign press, for the last two years so it is no surprise; it is the extent of the problem that surprised. What were the Eurostat officials doing all this time?
Public finance statistics in truth are bad and the EU should find a better system. More importantly there should be early warning action which the EU should introduce. If this event has something positive it is to give the EU a reality check and get politicians to act. Greece is not alone in facing the financial crisis.
Bambouin from Planet L comments:
Dear E Riza,
Regarding your last message about Italy / Greece entering the euro zone, I don't know about Italy, but actually the wealthier countries of the zone could not possibly have known the truth about Greece's economy, since the Greeks - in fine Greek tradition - faked their statistics to enter the euro zone.
Bambouin
E.Riza comments:
The issue is that politicians have only their national interest and not the EU when a crisis such as the one we are witnessing comes along. The internal market for the French does not exist niether for Germany when German jobs are at stake. The same applies to the monetary and fiscal policy. France and Germany can do what they like. I cannot accept that both countries did not know what they were doing when they let Greece and Italy in the eurozone but it was politics and not sound economics. The same applies to reform of the financial system; politicians dragging their feet. Unless the ploticians of Europe get their act together the EU will fundge and stumble along
AW comments:
You seem to forget that the Dutch and the Germans are the most properous states in Europe, exactly because of the policies of ther respective central banks. The reason why the southern european countries were keen on the Euro project was because they wanted to bask in that same sun of success.
It is unfortunate that the governments of Greece, Italy, Portugal and Spain did not see this also required them to follow sound government policies a well. Interest rates for bonds of these governments have sored. It is in their interest to keep the Euro alive as otherwise interest rates on these bonds will sore even higher, and with it the debt tobe repaid.
As unfortunate as it is for these countries, they are now forced to take harsh measures or else pass the debts on their children. Ireland can serve as an example, where the government not only talked the talk, but walked the walk. Time to shape up, cut the budget and reform.
E.Riza comments:
While Greece brought about the bulk of its problems, aggravated by the worst finaical crisis that has been seen in our lifetime, the questions that will be asked are those pertaining to the eurzone itself. The collection of disparate countries that are members of this zone is such that clearly one interest rate and one currency cannot hold when trouble hits an economy.
The politicians in Europe, and in greece, have themselves to blame. The Maastrict treaty was cut to suit the Germans and Dutch who were unwilling to give the Guilder and the Mark for a new currency when countries of south Europe were to be included. In fact the monetary approach even by the ECB to the recent crisis had all the hallmarks of the Deutsch Bundesbank which reacted too slowly in cutting interest rates; thanks to Mr Orphanides of Cypruss Central bank the message was received albeit to late. The economies of Ireland, Spain and Grece were in free fall some time ago. What have the politicians done to alleviate a serious problem. Each country for themselves with the Germans caring about Opel shutdown and the French caring about Renault not producing cars in Slovakia. INstrad of caring about the real repercussions on the real economies, jobs and the social implications they cared about protecting jobs in their own countries. Now they will have their come uppance.
The euro was storng as long as the US dollar was perceived to be suffering from weak economic growth. As usual the US reacts much more quickly and the US econom will gather speed in 2010. The dollar should continue to strengthen and the Europeans should pray that it does otherwise the worst is not over for the eurozone since the markes will punish the politicians bigtime. The Volcker rule should also be something the Europeans take very seriously and impose restrictipns on banks and hedge funds. Let them all go to some obscure contry and trade. Switzerland cannot be a home to such socially unacceptable practiss as proprietary trading nn matter what Bob Diamond says since his millions are made from trading. The politicians have to deliver asap a financial support package for Greece since the whole of the system is at stake. The sooner the better.
Alexy Flemming from NORTH CYPRUS comments:
Greece := Sick Man of Europe
Lawrence from Arnold, MO USA comments:
Granted the Greek's do have a problem with their books at the present time. But for everyone to run from the Euro to the Dollar is an illusion to think that the Dollar is in any better shape. With 41 out of 50 States having financial troubles and California being top on the list and the 6th biggest economy in the world it is only a matter of time until the world wakes up to the manipulation by the Federal Reserve and their UN-AUDITED books that the US is just one Giant Ponzi Scheme set to implode. The ONLY REAL Currency that will be left standing is GOLD & SILVER. Where do you think the smart money is going even now? All FIAT currencies are totally Worthless!
Resident comments:
From the text above.
"Cyprus, whose productivity rate under performs those of its euro zone partners, should also take note."
This is where corruption and greediness will lead you. Stand by Cyprus for some very hard times.
The prices will all continue to go up and the government hasn't the will, the know how or the guts to do anything about it.
Unemployment will continue to rise and things will only get worse.