There is a need to clear up some misconceptions about how Greece, or some other fiscal miscreant in the 16-nation eurozone, would be rescued by its partners in the event that it was unable to refinance its debts.
Quite a few commentators seem to think eurozone governments would find it hard to sidestep the ban on bail-outs specified in European Union treaty law. The European Central Bank, the European Commission and certain EU governments, not least that of Greece itself, have contributed to the confusion by insisting in public that a rescue is undesirable and unnecessary (while quietly planning for precisely this contingency).
Actually, EU legal experts have known for some time that, although a rescue of a eurozone member-state would not be straightforward in legal terms, it would be far from impossible.
The relevant section of the EU’s Lisbon treaty, which came into effect in December, appears to be Article 122. This contains two clauses. The first states that EU governments may decide to help each other out in the event of severe difficulties in the supply of certain products, above all energy. The second clause states that when a member-state “is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council [of national governments], on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the member-state concerned.”
There it is, in black and white. EU governments can grant financial assistance to a fellow member-state that is in serious trouble.
Of course, Greece’s woes have not been caused by a natural disaster. You could also make a pretty strong case that it is the mistakes of Greek policymakers, not events beyond Greece’s control, that lie behind the appalling mess in the Greek public finances. Still, if you don’t define the 2007-09 world financial crisis as an “exceptional occurrence”, then it hard to see what type of event could ever fall into this category.
Note that Article 122 stresses it would be EU national governments, acting on advice from the Commission, that would take the decision to rescue Greece – or Ireland, Portugal and so on. There is nothing in the treaty requiring the ECB to state its opinion one way or the other. So, on this question, it is important to listen to eurozone political leaders, above all Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, as well as Commission president José Manuel Barroso.
None of them is any doubt whatsoever that, if the worst happens, they will have to rescue Greece. As they see matters, the stability of one eurozone country is essential to the stability of all the others. As one high-level EU policymaker put it this week: “The EU has all the instruments to deal with the situation in Greece. We can do it, if the political will is there to do it.”
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