There is an additional problem here. Greece is, after all, in the Economic and Monetary Union and its currency is the euro. What will happen to the other countries in EMU if one member is declared bankrupt?
This is what Der Spiegel wrote on the 14th:
German Chancellor Angela Merkel refrained from commenting for three long days as the value of the Greek bonds continued to fall. The chancellor knew she had to say something to prevent the nose dive. Something needed to be done to defuse the ticking time bomb threatening Europe and the euro: the possible bankruptcy of European Union member state Greece.Some readers with long memories might recall that one of the arguments against entering the euro was that the Growth and Stability Pact would never be used against a recalcitrant member.
Speculators in the trading rooms of banks had been waiting for a signal. They wanted to know whether EU member states were going to rush to the aid of the hemorrhaging country on the Aegean. The longer they waited the further Greek bonds slipped - and the closer the country slid toward national bankruptcy.
Merkel doesn't believe that Greece can cope with its problems without help from Brussels - regardless of whether the Growth and Stability Pact prohibits such aid or not. That's what she told close advisers in the Chancellery on a number of occasions.
The rest of the article discusses the dire financial situation of the country and the various options open to the rest of the EU - not least the problem of what kind of signal would EU aid send to the Greek government. Then again, as the author points out with some agony in the words:
Europe might perhaps be able to afford to let a country go bankrupt just as the US was able to cope when California went broke. But what if this happens to a number of EU countries? That would trigger what euro skeptics warned about right from the start: the European common currency would collapse.When I recall the hubris of that first day of the euro on January 1, 2002 when we were told by numerous commentators that finally politics triumphed over economics, I cannot help smiling wryly and recalling Margaret Thatcher's famous comment about not being able to buck the market.
It is, perhaps, particularly unfortunate that the Greek tragi-comedy should be unfolding now as the euro is officially the currency of the European Union since December 1 when the
Today's article in Der Spiegel gets a little more precise. It seems that the EU will not let the IMF step in and rescue Greece because that would be against the rules:
It is becoming increasingly unlikely that the European Union will allow the International Monetary Fund (IMF) to step in and provide ailing euro zone member state Greece with a bailout. A growing number of politicians and central bankers are opposed to any form of IMF intervention.One can't help feeling that Chancellor Merkel is becoming a little confused as to which political signals are to be sent and to whom.
"We don't need the IMF," Axel Weber, president of Germany's central bank, the Bundesbank, said, according to a report published in Monday's issue of SPIEGEL. Weber noted that it is illegal in Europe to finance budget deficits using the kind of central bank funds which are at the IMF's disposal. With his statement, Weber joins ranks with German Chancellor Angela Merkel, who believes IMF intervention would send the wrong political signal. The EU, she believes, is strong enough to handle Greece's problems on its own.
Central bankers also feel there's another reason the IMF shouldn't intervene: Greece's case, they argue, does not involve a loss of trust in the country's currency. Instead, they say, financial markets have doubts about the credibility of the debtor, the Greek state.
However, lessons need to be learnt, say some politicians:
Meanwhile, the research service of the German parliament, the Bundestag, has also analyzed the situation. In an assessment provided to Volker Wissing, a member of parliament with the business-friendly Free Democratic Party (FDP) -- which shares power in government with Merkel's Christian Democrats -- the experts concluded that a member state cannot be kicked out of the EU if it becomes insolvent. Nevertheless, if a euro zone member violates monetary union rules, certain rights that come with EU membership can be suspended. For example, a country could be temporarily stripped of its vote in the European Council, the EU institution comprised of the heads of government or state of the 27 member nations.Can't wait to see which rights of which bankrupt country will be suspended.
For that reason, Wissing is calling for the EU, "to thoroughly examine new members in the future to ensure that they will actually be in a position, in the long term, to meet the demands of a common currency."