Monthly Archives: May 2010

The EU rescue plan explained

FT economics editor Chris Giles analyses the joint EU and IMF intervention to restore confidence to European banks and investors, at www.ft.com/eurescue

The €500bn eurozone stabilisation package agreed in the early hours of Monday, to be topped up by as much as €250bn from the International Monetary Fund, represents the first time since the Greek debt crisis erupted in October that European political leaders have moved decisively ”ahead of the curve”.  All along, the only way of calming financial markets was to produce an initiative that would exceed their expectations and convince them that Europe would do whatever was necessary to save its monetary union. Read more

One reason why the eurozone is sliding into ever deeper trouble is because its political and bureaucratic elites do not like, do not understand and have no wish to understand financial markets.  This is an attitude embedded in European history and culture.  Think of the 1793 Law of the General Maximum, an arbitrary attempt to fix prices at the height of the French Revolution.  Or think of the social status attached for the past 150 years to being a state-employed soldier, teacher, office clerk or railway worker rather than a banker in Germany. Read more

One frequently aired proposal for overcoming the ever more dangerous strains in European monetary union is to encourage Germany, which enjoys a large current account surplus, to buy more from Greece and other southern European countries struggling with large deficits.  This, so the argument goes, would rectify the imbalances that are destabilising the eurozone and would demonstrate Germany’s sense of responsibility and solidarity with its 15 euro area partners. Read more

With Prime Minister Gordon Brown’s ruling Labour party heading towards defeat in Thursday’s British general election, the European left may soon be in even worse condition than it was just one year ago.  The trouble started in last June’s European Parliament elections, when centre-right parties swept to victory in the European Union’s six biggest countries – France, Germany, Italy, Poland, Spain and the UK.

Then came the Social Democrats’ crushing defeat in September’s German election: the SPD took a mere 23 per cent of the vote, its worst result in the Federal Republic’s 60-year history.  Finally, Hungary’s ruling socialists were decimated last month in an election that saw the triumph of the centre-right Fidesz party and a strong performance by the ultra-right Jobbik party. Read more

Better late than never.  That is one way of looking at the three-year, €110bn rescue plan for Greece that was announced on Sunday by eurozone governments and the International Monetary Fund.  It took seven months of indecision, bickering and ever-mounting chaos on the bond markets for the eurozone to get there, but in the end it did – and it may just have saved European monetary union as a result.

Looked at in a different light, however, the rescue package does not appear to be such a masterstroke.  For its underlying premises are, first, that there should under no circumstances be a restructuring of Greek government debt, and secondly, that Greece’s troubles are unique to itself and need not be considered in a context of wider eurozone instability.  Both premises are open to question. Read more