Those opposing the bailout by the eurozone offer several reasons. First, the bailout, in violation of EU treaties, would allow Greece, which they believe should not have been allowed to join the eurozone, to wallow in fiscal incontinence longer. Second, the bailout would create moral hazard throughout the eurozone, requiring eventually much costlier bailouts of larger countries such as Spain and Italy. Third, such future bailouts would exceed the financial capability of even Germany and France, ultimately bringing their sovereign risks into question. Fourth, the bailout would saddle eurozone taxpayers outside Greece with huge costs which should be borne by Greek taxpayers themselves who were the beneficiaries of Greece’s profligacy, evidently kept secret for decades by Greek governments through falsified official economic data. Fifth, Greece, which some label as the last Soviet-style economy in Europe, with hundreds of billions of euros in state-owned assets in many sectors, can solve its sovereign debt problem as well as modernize its inefficient economy through a massive privatization. Sixth, the IMF, experienced in sovereign bailouts and less vulnerable to political pressures than eurozone leaders, should take charge of Greece’s rescue. Then, the IMF, as the price of its help, can insist on the necessary reforms. There are also those, least sympathetic toward Greece, who argue that a default purgatory would be a good lesson for both Greece and other profligate eurozone nations. They argue that Greece, who should not have been let into the eurozone in the first place and cannot legally be forced out, should be encouraged to leave. The departure of Greece from the eurozone, with enormous complications all around, would be the most drastic outcome of the crisis. Such an outcome is not unthinkable, however, if the Greeks find the price they have to pay for the bailout, by either the eurozone or the IMF, too high in terms of the serious sacrifices they would be required to make under tutelage. Already the deepening political and social unrest in Greece, revealed through xenophobic demonstrations and strikes -- in which foreigners in general and financial speculators in particular are blamed for Greece’s self-inflicted injuries -- points to a possible, but not very likely, desperate exit from the eurozone and even the EU. (Was it entirely coincidental that in December the European Central Bank [ECB] published a working paper titled “Withdrawal and Expulsion from the EU and EMU: Some Reflections” by Phoebus Athanassiou, the ECB’s legal counsel?)
After their summit in Brussels last Thursday, the EU leaders issued a short statement on the Greek crisis, which left everyone still guessing about who will save Greece from sovereign default and how. After calling on the Greek government to clean up its fiscal mess, the baffling statement concluded: “Euro area member states will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole. The Greek government has not requested any financial support.” The statement was baffling because it did not say how the eurozone will safeguard its financial stability. Will it guarantee Greek debt? Will it give Greece a loan? It also did not explain why Greece is mired in a sovereign debt crisis if it did not ask for any financial help. Afterwards, a disappointed and indignant Greek Prime Minister George Papandreou accused the EU on TV of letting his country down. We might know more about the eurozone’s Greek-crisis management plans after the meetings of the eurozone and the EU finance ministers this week. But the Greek crisis will most likely continue to run its course in the weeks ahead. Let’s hope it does not turn into a convoluted Greek tragedy resulting in too many tears.
