The epic bail-out of Greece

We can take it more or less for granted that the euro is not going to collapse this time - too much is at stake for the leading members, Germany and France, to allow that to happen. It was, is and always will be a political project, with no economic rationale and little public support for the obvious next step: complete economic and political union with a government that can deal with such problems as Greece and the other PIGS waiting in the wings. (Seems very unfair on pigs, who are delightful and useful animals.)

The Mises Institute has joined the fray with a thoughtful article on the Greek crisis a.k.a. the crisis of the euro, which explains at length and in detail how the eurozone has been funding Greece and her spendthrift ways for some time. The problem with the article as with most writings on this website is their disdain for things political. They really do not understand why the euro was created, why it will be propped up as long as possible and why the creation of a European government is such a difficult proposition.

Avoiding all the obvious, rather gloating comments (and I do feel a certain amoung of schadenfreude, having predicted many of these developments without being an economist), we need to concentrate on how it will affect Britain. This is what Edmund Conway does in the Telegraph today and he is not altogether sanguine. He also reminds us all that it is PIIGS we are talking about, as Italy is in a bad state as well.

"UK banks" he says, "are exposed to these countries to the tune of 16 per cent of gross domestic product." Whatever happens will affect our economy as well.

While we are on the subject, what is likely to happen?

At the moment, it looks as if the eurozone members (mainly France and Germany) will provide cash for a “firewall” bail-out designed to prevent these countries from toppling, but there are some whispers that Britain may have to make a contribution. These figures might help explain why.

So, not joining the euro has saved us from the worst of the disaster but it is not going to leave us unscathed.

There is, of course, another reason why, despite HMG's wriggling whenever a direct question is asked, the UK is likely to be participating in the bail-out. Article 122.2 of the Constitutional Lisbon Treaty.

Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional circumstances beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions,Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.

One could argue that this particular disaster was not caused by circumstances beyond Greece's or Spain's, Portugal's, Italy's and Ireland's control but, somehow, I do not see that one taking off at the emergency meeting of the EU Ministers.

Open Europe has produced a handy briefing, full of figures, graphs and quotations about the probably bailing out of Greece and why that is unlikely to help the eurozone. True to their usual principles, Open Europe bemoans the fact that the eurozone is contemplating a series of acts that will weaken it and make it less popular instead of introducing some stringent economic reforms.

Their summary also says that of the 10 possible ways of bailing out Greece, most are either illegal or probably illegal (with different Treaty Articles in conflict) and so the EU will have to break or, at least, bend its own rules. I am shocked, I tell you, shocked.

The paper is worth reading, however.