With good reason the eurozone’s political leaders have been criticised for reacting too slowly to the Greek sovereign debt crisis. But what’s new about that? Slowness often seems to be a defining feature of Europe’s approach to policymaking.
Consider the proposals that are in the air for the creation of a European Monetary Fund to manage Greek-style crises in the future. There is widespread support for such a fund, ranging from the European Commission to Wolfgang Schäuble, Germany’s centre-right finance minister, and socialists in the European Parliament. Read more
George Papandreou, Greece’s socialist prime minister, is an honourable and courageous politician who has done a great deal in his career to improve his country’s image in the eyes of its European Union partners. So it cannot have been easy for him to announce today that he was requesting the activation of the €40bn-€45bn eurozone-International Monetary Fund financial rescue package for Greece.
No eurozone member-state has suffered such a humiliation since the euro’s launch in January 1999. But Papandreou must have feared, as soon as he took office after last October’s election, that emergency foreign assistance was going to be necessary. Read more
When they announced their provisional rescue package for Greece on Sunday, European officials pointed not only to its size – at least €30bn- but also its details. For euros and details are what the markets have been demanding these last frustrating weeks. Read more
You know that the European Union is in trouble when Russia offers more intelligent advice on the eurozone’s debt crisis than Spain, the country that holds the EU’s rotating presidency. Dmitry Medvedev, Russia’s president, disclosed the other day that he had recommended to George Papandreou, Greece’s prime minister, that the Greek government should request assistance from the International Monetary Fund to sort out its problems.
This is exactly the course of action advocated by several non-eurozone EU countries as well as a host of distinguished economists and, dare I say it, the editorial writers of the Financial Times. As it happens, I don’t agree – if by IMF assistance we mean financial help. The IMF will be involved, along with the European Central Bank, the European Commission and eurozone finance ministers, in monitoring Greece’s public finances and providing technical aid as required. Read more
There are two schools of thought on whether Latvia should devalue the lat, or fight tooth and nail to keep its currency peg to the euro. One, espoused by the Latvian government, the International Monetary Fund and the European Commission, is that devaluation would destabilise the Latvian banking system, wouldn’t really address the long-term challenges facing the Latvian economy, and would risk spreading shock waves beyond Latvia across the Baltic and into other parts of central and eastern Europe.
The other view, espoused by some of the world’s leading economists, such as Paul Krugman and Nouriel Roubini, can be summed up as: “Get Real”. Without devaluation, the only path that Latvia can go down to extract itself from crisis is massive deflation, through spending cuts and sharp falls in wages that will inflict terrible damage on society and will unnecessarily prolong Latvia’s recession. Read more