Thoughts on Greece and the Euro
12 April, 2010
OK, so I’m not a professional economist, or a qualified lawyer, but fools rush in …..
Firstly, do the EU Treaties, and Article 125 in particular, really prevent a bailout of Greece, as we see/hear said frequently? I don’t think so, but it depends what you mean by bailout.
Article 125 of the TFEU (post-Lisbon Treaty) states: “The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume …… etc etc”.
So, despite what some commentators have said, there is no prohibition on lending money to Greece; what can’t happen is for the EU or any Member State to take over its loans, or give it “free money” And I would think that, as long as the interest rate charged is not unreasonably low, there would be no problem.
Secondly, almost regardless of what interest rate the Eurozone members charge Greece , I expect to see a challenge brought in the German Constitutional Court to the German participation in the loan facility. I have already commented on that Court’s robust attitude to all EU matters, and the way it jealously guards what it considers is its ultimate right to decide if Union activities are ultra vires – see this post.
In a famous case in 1993, a Eurosceptic member of the FDP Liberal party took the Maastricht treaty to the German Constitutional Court in Karlsruhe, claiming that the abolition of the deutsche mark (as part of the creation of the Euro) was unconstitutional. The court only agreed to permit the ratification of the treaty by Germany on the basis that currency stability would be as well protected by the European Central Bank as it had been by the Bundesbank. There has, in effect, been a threat hanging over the ECB and the Eurosystem that at any time the good judges in Karlsruhe might seek to trump their actions; this would bring to a head the unresolved issue (at least in the minds of the German judges) as to who, in law, gets to make the final determination as to whether an action of the EU is ultra vires, and goes beyond the legal authority conferred by Member States in the various EU treaties.
Thirdly, a question: why is the Euro being hit so badly by the fiscal woes of Greece and other delinquent states, when the value of the dollar is apparently not affected by the budget deficit and debt problems being experienced by (for instance) California?
Fourthly, if Greece defaults (and some observers believe this is very likely), might the resulting grief suffered by that country’s citizens be a help to the Irish government in its battle with our public service unions? Maybe Greece needs to be the sacrificial victim, pour encourager les autres?