The idea for a European Monetary Fund (EMF), put forward by Daniel Gros and Thomas Mayer, is gaining new ground. FT reports that the German finance minister Wolfgang Schäuble has revealed the first details of a plan for establishing the EMF.
Mr. Schäuble said that the EMF would be an institution for the internal equilibrium of the eurozone that would have at its disposal both the experience of the IMF, and comparable intervention mechanisms. The idea is also to include tough penalties for eurozone members that fail to curb deficit spending or run up excessive government debt.
Greek Deputy Prime Minister Theodoros Pangalos has criticised Germany’s attitude towards the ongoing Greek debt crisis, adding that Athens had never received adequate war reparations. The German foreign ministry said that a discussion about the past is not helpful at all to solve today’s problems.
Mr. Pangalos also said that the EU suffers from lack of leadership. He added to that Italy was being more inaccurate with its financial statistics.
At the same time Greece demands a debt default guarantee to calm down markets.
I am in disarray. How is Greece expecting to get support and sympathy from its peers when using such language??? The markets will not be calmed by Mr. Pangalos’ statement; that is clear. I wonder whether Kostas Simitis knew better.
The pressure is mounting on the European Union to do something about Greece’s debt and fiscal deficit problems. The word “bail-out” is heard more and more often.
Meanwhile the Greek public sector workers have gone on strike in the first major test of the government’s commitment to push through austerity plans.
But who can really “save” Greece? There are some options – a common EU approach, a unilateral bail-out by Germany, or an IMF-led bail-out. All approaches have their benefits and shortcomings.
However, I am much more interested in the conceptual debate – why did the crisis happen in the first place, and what can be done to prevent such future crises.
One of the reasons for the crisis is the poor quality of the Greek financial statistics. There is some evidence that Goldman Sachs has helped the Greek government hide (???) in 2002 an additional 1 billion US dollars in debt. I find this scandalous and unacceptable, and a proper investigation should be carried out.
But Paul Krugman goes further and says that the only way forward is fiscal and labor market integration. I agree. From a conceptual and systemic viewpoint the current arrangement of the eurozone is quite vulnerable. I also tend to know that such integration seems unthinkable in many European capitals today. Maybe the Greek experience (and the Spanish, and the Portuguese, and perhaps more) will teach us to be practical.
The Council has accepted the findings of the Commission report on the Greek debt and deficit statistics, urging the Greek government to improve its statistics record.
Meanwhile Martin Wolf has a very interesting article about Greece in the FT. He says that a big structural fiscal tightening will generate a deep recession, and possibly a long-term stagnation.