The Dutch have now also signalled a firming opposition to a bailout of Greece, adding to the chorus of voices in Germany which are categorically against such a move. While I had previously said some sort of support could be forthcoming, most of the recent press coming from Germany and the Netherlands is quite categorical. That bodes ill for Greece, now beset by union strikes and social unrest.
When I wrote that The Germans will not bail out Greece, there was considerable chatter that a bailout was imminent. While I said the Germans would not bail out the Greeks, I did think that some backdoor bailout sleight of hand or debt guarantee might be arranged in exchange for austerity measures – and this still might occur.
Nevertheless, the show of support the EU eventually offered up late was of the perfunctory “psychological and political” variety. (See post here.) This was wholly inadequate as a policy response and has unsettled debt markets. A better choice would have been a clear yes or no.
So, at this juncture, the “No” vote is gaining a lot more momentum – particularly in Germany and the Netherlands. Otmar Issing, a former German member of the European Central Bank’s executive board, offered up the best argument as to why a bailout should not be given.
Greece will continue to receive support from several European Union funds. But financial aid from other EU countries or institutions that amounted, directly or indirectly, to a bail-out would violate EU treaties and undermine the foundations of Emu. Such principles do not allow for compromise. Once Greece was helped, the dam would be broken. A bail-out for the country that broke the rules would make it impossible to deny aid to others.
It seems that quite a number of observers have forgotten what Emu is, and what it is not. The monetary union is based on two pillars. One is the stability of the euro, guaranteed by an independent central bank with a clear mandate to maintain price stability. The other is fiscal solidity, which has to be delivered by individual member states. Member countries are still sovereign. Emu does not represent a state; it is an institutional arrangement unique in history.
In the 1990s, many economists – I was among them – warned that starting monetary union without having established a political union was putting the cart before the horse. Now the question is whether monetary union can survive without such a political union. The current crisis must be handled in such a way as to produce a positive answer. The viability of the whole framework – nothing less – is at stake.
By joining Emu, a country accepts its rules. Greece, moreover, also knew that adopting a stable currency that was not controlled by its own central bank implied a total break with the past. Devaluation of the national currency and an inflationary monetary policy were no longer options. A single monetary policy is implemented by the European Central Bank and it is the responsibility of each country to adjust its economic policies so that this one size fits all.
Translation: individual EMU countries retain national sovereignty. It is therefore incumbent on those national governments to ‘harmonise’ their fiscal policy in accordance with the prevailing EMU monetary policy and with other EMU nations’ fiscal policy. The Greeks have not done so and should suffer the consequences – no ifs ands or butts.
This is the correct approach. Moreover, this is precisely the reason why eurosceptics like myself have said unharmonised economies like Greece, Spain, Portugal and Ireland would suffer. Italy may have its own fiscal problems, but it is far more harmonised with the rest of core Europe. On the other hand, Britain is not – and this means it was wise for the British to stay away from the euro.
The German people are very opposed to a bailout according to a recent poll in Bild am Sonntag. More than two thirds polled rejected a bailout for the Greeks, a majority saying they should be ejected from the Eurozone instead. I should note that Bild Zeitung is the rough German equivalent of Britain’s “News of the World.” So, you do have to question its polling on economic data. Nevertheless, Bild is the most read newspaper in Germany – much as News of the World” is in the UK. So, it has clout.
In the Netherlands, a similar opposition to a bailout is now taking form. Ambrose Evans-Pritchard reports:
Holland’s Tweede Kamer has passed a motion backed by all parties prohibiting the use of Dutch taxpayer money to bail out Greece, either through bilateral aid or EU bodies. “Not one cent for Greece,” was the headline in Trouw. The right-wing PVV proposed “chucking Greece out of EU altogether”.
That said, the two Dutch financial newspapers I read regularly, Financieele Dagblad and NRC Handelsblad, have not mentioned anything about Dutch opposition to a bailout whatsoever. A quick scan of the three major Dutch dailies (Telegraaf, Volkskrant, Algemeen Dagblad) showed the same. The only commentary I could find of this nature came from Jaap van Duijn, a former fund manager at Robeco, who basically said the United States of Europe is an artifice that doesn’t have resonance with the populace:
Portuguese feel no connection with the Finns and the Irish have not much to the Greeks.
The only assistance can come from the creditors who can set up a debt restructuring plan with Greece. But that is in their own interest.
Translation: Greece, you’re on your own. We Dutch don’t want to foot the bill.
So, Evans-Pritchard may be playing this up to promote his eurosceptic viewpoint. But, it does seem that its not just the Germans against a bailout.
Europe cannot afford to rescue Greece – Otmar Issing, FT.com
Germany growls as Greece balks at immolation – Telegraph
Griekenland – Jaap van Duijn, Telegraaf
Originally published at Credit Writedowns and reproduced here with the author’s permission.