Greece Will Get Help But Europe's Credibility May Falter


After several weeks of meetings and failed negotiations, the EU has finally reached a deal for Greece. The deal is suppose to rescue the country from defaulting on its debt. Yet, looking at the essence of the agreement which is putting on the table the possibility of a bailout from the International Monetary Fund, many economists, including us, are considering it as a major failure since the Euro Zone unity and  economic and monetary union were shown to be very weak.

Indeed, the accord agreed on March 25, states that Greece may not only receive coordinated bilateral loans from other Euro Zone members but also substantial funding from International Monetary Fund. And although Athens will get this type of  help only if is unable to refinance its 16 billion euros of government bonds due in April and May, the fact that IMF is involved puts it in line with countries like Argentina, Ukraine  or Hungary, which are on other stage of economic development. In addition, the commitment is short in details; it's not clear how big the bailout would be, what interest rate will be be charged, which countries will put the money on the table and how big the IMF share is likely to be. More importantly, it's quite doubtful that in the long run, even with financial support, Greece will  achieve any sort of sustainability. After all, the national debt is already equal to 113% of GDP and even with substantial budget cuts it may rise further before it starts falling.

Looking further, the way the deal was reached, raises questions about the European Union ability to deal with complex problems.  In fact, although, euro zone consists of sixteen members, the only ones deciding on Greek bailout seemed to be Germany and France and both of them were putting their interests in front of those of the economic and monetary union. In fact, German chancellor Angela Merkel was pushing the IMF option, due to public reluctance to help Athens. Any money sent to Greece from German pockets before regional elections at the beginning of May could hamper the popularity of her party, the Christian Democratic Union. Moreover, French president Nicolas Sarkozy was not better. He strongly opposed any IMF involvement not because he cared about Greece, but because he feared to be overshadowed by the organization's Managing Director Dominique Strauss-Kahn, which is likely to run in the next presidential election. In any case, Greeks will get help and the country is so desperate that at this point doesn't matter from who. But what about the European Union itself?  For sure, it is likely to lose the rest of credibility left after the disturbing appointments of unknown figures for the European Council President and High Representative of the Union for Foreign Affairs and Security Policy.


Anna Fedec, contact@tradingecoomics.com
3/26/2010 6:11:00 PM