Greece Gets Bail-Out Package from EU, IMF

The prophets of doom once again proved they don't understand Cromwell's adage, "Necessity hath no law." This time, they were convinced that the Greek debt problem would shatter the eurozone, undermine the European Union and otherwise bring discord and chaos to the Continent. The truth is the Germans and French, whose banks held huge quantities of Greek debt, weren't about to let Athens bring down their European project. On Friday, the German government approved the bail out, and yesterday, the EU finance ministers approved a "stabilization mechanism." Politics trumps economics and finance.

This is not to say that the problem is solved once and for all. The Greek debt crisis illustrates the tension in having independent fiscal policies within a currency union. Someday, this must be addressed. The Greeks entered the eurozone under false pretences, and they have continued to cook their books until most recently. Voluntary measures clearly are unacceptable. Measures of a different sort, though, will require significant transfers of power to Brussels.

Reuters explained, "The $1 trillion package consists of 440 billion euros in guarantees from euro area states, plus 60 billion euros in a European stabilization fund that could be disbursed to help euro zone states if needed on strict austerity conditions. EU finance ministers said the International Monetary Fund would contribute up to 250 billion euros, taking the total to 750 billion euros, or around $1 trillion."

This is far in excess of what Greece needs, and the EU is trying to convince the markets by the sheer size of the arrangement that it is prepared to back up any member nation. Greece is a relatively small market, and the next in line for attack, Portugal, isn't a threat either. Spain, as the fourth largest eurozone economy and the next likely target for speculative attack after Portugal, is another matter. Whether the EU could bail it out is unclear, but the idea here is to scotch any plans in the speculative segment of the market about trying to break Spain. The vaccine is cheaper than the cure.

It appears that the same market that was so wound up about the situation last week is now positively giddy. The BBC reported, "Wall Street opened 3.9% up, after a 5% rise on the main UK and German stock markets, and an 8% surge in France. The euro rose against both the dollar and pound, and the oil price jumped more than $3 a barrel to $78." The Beeb also quoted Jane Foley, the research director at Forex.com, "Default risk has been quashed and the market reaction has been euphoric."

For those who considered the issue a financial or economic problem have had many sleepless nights. For those who understood that it was always a political matter, the question was only, "what's all the fuss about?"

© Copyright 2010 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

Kensington Review Home