Unbelievable? Not anymore

Illustration by Manos Symeonakis

Brussels – The British indie dance band EMF had only one hit. It was with their first release in 1990, a single called “Unbelievable.” Twenty years on, the possible existence, let alone success of another EMF, the European Monetary Fund, seemed scarcely believable. But Greece’s descent into fiscal hell over the last few months has changed all that and on Monday the European Union essentially took its first, albeit tentative step, toward constructing its own version of the International Monetary Fund.

As far as historic moments go, Luxembourg Prime Minister Jean-Claude Juncker, who also heads the Eurogroup, and European Economic and Monetary Affairs Commissioner Olli Rehn, did their best to make their announcement that the other 15 euozone members had agreed to provide Greece with financial assistance as underwhelming as possible. The briefing room at Justus Lipsius building in Brussels must rarely have been as packed for a monthly Eurogroup news conference as it was on March 15 when journalists gathered to hear that eight years after the euro went into circulation and almost two decades since the signing of the Maastricht Treaty that laid the foundations for the single currency, those using it accepted that the framework needs to be strengthened.

 

Juncker and Rehn announced that a procedure had been put together by which a eurozone member in economic trouble, in this case Greece, would be able to rely on financial backing from its partners. From being one of the European members of the so-called PIGS economies, Greece could soon be handed the key to the EU piggy bank. The EU is not an organization that adapts particularly quickly to changing landscapes but Greece’s plight has caused a seismic shift that puts the very viability of the euro at stake. So, the Union has decided it needs to update its tools to ensure it’s not lost in this new financial geography.

Juncker and Rehn did not reveal exactly how the scheme, which bypasses the “no bailout” clause in the Maastricht Treaty, would work although it appears that it will take the form of bilateral or multilateral loans from other eurozone members or banks in those countries that will be funneled through the European Commission. Strangely, for a measure designed to ward off speculators who think they can still make a quick buck off Greece’s economic weakness, Rehn played down the landmark moment, speaking of “coordinated assistance” which “could be activated if needed” while underlining that any action would be in line with the “treaty framework” and “national law.” 

The EU specializes in technocratic double speak but this time there was a good reason for obfuscating. Any deal relies on the acquiescence of Germany, the eurozone’s most powerful and healthiest economy. Beyond any qualms that the Germans may have about giving cash to a country that has so flagrantly ignored the currency’s rules, the government is concerned about telling the country’s taxpayers they might have to cough up for Greece’s recklessness. Chancellor Angela Merkel leads a three-party coalition of her own Christian Democratic Union, the liberal Free Democratic Party and Bavaria’s Christian Social Union. Elected to power only last year, the so-called “black and yellow” coalition is suffering. Its popularity in opinion polls is sinking faster than Greece’s credibility on international markets and the FDP leader Guido Westerwelle, who is vice-chancellor and foreign minister is pursuing a populist agenda that makes it difficult for Merkel to consider Germany’s participation in an emergency fund for Greece.

This might explain why less than 24 hours after the meeting of EU financial ministers in Brussels, when the bailout was again given approval, Merkel was telling Germany’s Parliament: “We do not need a solution that helps in the short run but weakens the euro in the long run.” This double talk is part of the cat-and-mouse game that Merkel is playing with German voters but also reflects Berlin’s determination not to commit to the financial package before it is absolutely necessary as it fears setting a precedent that would make it easier for another struggling member – Portugal or Spain maybe – to call for assistance in the near future rather than itself taking measures to fix its public finances.

But in essence, the precedent was set on Monday night with the landmark breakthrough in the eurozone, which brought the creation of a European Monetary Fund a step closer. The EMF may be several years away because changes to the EU’s treaties are first needed but it appears to be a natural continuation of what was agreed this week.

Given the financial turbulence of the last couple of years, it makes absolute sense for the EU countries to have a fund that they can rely on to rectify economic problems. It means that the option of the IMF would be off the table and Europeans could be true masters of their own destinies. The IMF, in the view of many economists, provides a one-size-fits-all solution that does more damage than good in many of the countries that call on its help. With the EMF, the EU could adopt a more tailor-made approach based on European economic and social particularities. Also, the idea of each member state contributing toward this fund on an annual basis would make them real stakeholders in the future of the Union and take the EU closer to a more complete economic and political union.

The economic crisis has brought the EU to the point of no return. If Greece doesn’t get the financial help it needs and turns instead to the IMF, as it has threatened to do, then hopes that the Union could stand for more than a collection of common goals and practices would be in tatters. If Germany were to decide that it has had enough of the economic shenanigans of countries like Greece and considers reintroducing the Deutschmark, which would please some in Berlin, then the effect would be even more devastating.

Giving Greece a cash injection is a logical short-term decision to help it and the EU ride the current storm but if the Union is to safely navigate through this crisis then a more substantial solution is needed for the long-term. For all the coyness and brinkmanship on all sides, it is patently obvious that there are still powerful common interests at the EU’s heart and that its future depends on these outweighing individual designs or whims. That’s why the idea of an EMF is not so unbelievable anymore.

This commentary was written by Nick Malkoutzis and appeared in Athens Plus on March 19.

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