Helping Greece: Reason Over Wrath
Editorial, Le Monde | March 4, 2010
The Greek deficit revealed two major flaws in the European integration machine: firstly the sheer absence of a budget deficit watchdog and secondly the lack of either support or sanction if one member state eventually goes bankrupt. ++ Germany, having sacrificed much to the Euro's implementation, is right to be angry. ++ But rationality should overcome wrath, for the cost of inaction might be higher than the cost of solidarity. ++ This is time to explore all the possibilities offered by the Lisbon treaty to help each other today, and plan for tomorrow.
Mon, Mar 8th 2010, 17:44
Luis de Agustin, H.C. Wainwright & Co. Economics, (2)
The editorial imagines that anger toward this behavior should not guide German policy. Unimaginable, it would appear to Le Monde to leave Greece to fend for itself. The Greeks would have to find a path between default and renegotiation of debt along with a sizeable reduction in the size of their public sector. Either of these to reasonable choices would contain the damage and reassure markets. This would likely produce a better economic future for Greece and a healthy deterrent to other high spenders.
Le Monde’s prescription chooses to align with the same politicos who were likely aware of Greece’s maneuverings (aided by Goldman Sachs). It prefers to support a rescue. It chooses to ignore a chain reaction of moral hazard that undermines the credit worthiness of the continent, not to mention the dismissal of citizen outrage of Greece and her EU enablers’ involvement in the next closest thing to fraud, in the form of the publication of totally misleading government debt statistics.
While Le Monde finds the German view “understandable,” the editorial claims it will lead to a deadlock, with other EU countries experiencing difficulties. This suggests a gun at the EU’s collective head.
For certain, European leaders are in a bind. On the one hand, attempts to restrain government spending are opposed by political forces throughout Europe that are powerful enough to bring economies to a standstill.
On the other hand, they foresee that a bailout of the Greek government would set off an extremely expensive chain reaction of assistance to a waiting line of struggling EU members.
That’s the Greek Scylla and Charybdis, and whichever rocks (or middle sandbar) European leaders sail to will be based purely on where each stands politically. Reason and wrath as posited by the editorial will have little to do with the course chosen and set.
Luis de Agustin