The EU hopes words will be enough to fix the Greece crisis
This was not a “deal”, or an accord. Or even a bailout. Not yet.
This political dance around this financial mess is oddly reminiscent of the days preceding the Lehman Brothers’ debacle.
The predictable nightmare that the grandfathers of the single currency hoped would never happen is now upon the Eurozone. The hope of Big Europe is that words, rhetoric and a short statement of solidarity can plug Greece’s credibility gap.
And guess what? It worked. For about two hours. Until the markets scratched their head and realized there was no detail underpinning the grand claims of Eurozone solidarity.
One leading academic euro economist told me here: “There is no ‘deal’, this is just a restatement of known positions and an attempt to fudge the issue. Crunch time will come when the Greeks have to refinance a hefty chunk of their debt.”
Others in the markets were more generous, emphasizing that this had been “tough love”. France and Germany in particular wanted to avoid the humiliation of bringing in the IMF.
So instead the European Commission and ECB will take on the role of bad cop, of economic hitmen. Greece is on Europe’s naughty step.
It will be subject to quarterly financial surveillance of the detail of health, tax, pensions policy, normally associated with the IMF’s forays into South America, and unprecedented in the European project’s 53-year history.
As PM Papandreou put it just a few moments ago “Greece has lost part of its sovereignty, we will be monitored. But if we can regain credibility we can win back our sovereignty.”
This was the result of German concerns. There were splits within European leaders about the role of the IMF. But there were also splits within the German ruling coalition about giving Greece “a blank cheque”.
The party of Chancellor Merkel’s own Foreign Minister Guido Westerwelle issued a Bundestag statement yesterday against German taxpayers’ money going to Greece.
Yet the markets may look at this again tomorrow or early next week and demand more concrete details. Either bilateral loans to help Greece refinance, or a set of loan guarantees.
When push comes to shove, the German and French authorities will not let the euro be humiliated. But they’ll need more than the reassurance of Barroso and Van Rompuy.