Euro crisis: “an existential crisis for the euro zone”

Eurozone finance ministers have withheld the release of a €12 billion loan to Greece in the hope that the Greek Prime Minister, George  Papandreou, can secure a domestic political consensus.  The BBC report quotes from the EU finance ministers’ statement

A statement issued by the ministers called on all political parties in Greece to: “support the programme’s main objectives and key policy measures to ensure a rigorous and expeditious implementation”.

“Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success,” it added.

The prospect of such Greek “national unity” remains uncertain, at best.  And the BBC’s Robert Peston, still everyone’s hero, questions the logic of the finance ministers’ ultimatum

First, that when people talk about Greece as Europe’s Lehman moment, they are wrong. Letting Greece default in a disorderly, uncontrolled way would probably be a good deal worse for the global economy than Lehman’s collapse – for all that banks in general have more capital to absorb losses than was the case in the autumn of 2008, and are less dangerously inter-connected with each other.

Second, the eurozone ministers’ decision to postpone the definitive decision on a further 12bn euros of bridging loans for Greece is not likely to scare Greece’s austerity objectors into submission.

It could well persuade the Greek opponents of fiscal retrenchment that eurozone ministers are all talk and no trousers, that they are so disunited on how to fashion a fundamental solution to Greece’s excessive debts that Greece is better off taking direct control of its own economic destiny.

However, if this eurozone brinkmanship nudges the Greek parliament to reject the further budget squeeze, we’ll be closer than is remotely prudent or sensible to a 1930s-style financial and economic disaster.

BBC Europe editor Gavin Hewitt is, slightly, more optimistic

George Papandreou, opening a debate on a vote of confidence, has called for “national accord”. He said cash reserves would soon be exhausted. The image of national division was not helping the country survive. He offered a referendum in September on a new constitution that would make it easier to pursue corrupt officials.

He will probably win the vote of confidence on Tuesday. The week after, parliament will vote on the austerity package.

That will be a tense moment, with the risk of further violence. Even if there is another bail-out of around 110bn euros, Greeks have lost faith in the plan. All they see is debt piling on debt.

This is where the danger lies. A creeping despair. Injured national pride. Ten years of austerity.

Even so the bet must be that the Greeks reluctantly, sullenly, will go along with new austerity but I have sensed a despair that last year just wasn’t there and no-one knows where that will lead.

And, along with the diverse political interests noted in that linked Slugger post, the Irish Finance Minister, Michael Noonan, has added his tuppenceworth

Asked if it would be really credible, Mr Noonan said: ‘It has the possibility of being very credible, but the primary Irish interest is to ensure that whatever solution is put in place does not contain elements which would affect us adversely, so we’ll certainly be saying no contagion for Ireland – regardless of what the conditions are.’

Asked to explain that statement, Mr Noonan replied: ‘It’ll depend on the measures that are put in place, but in very simple language, we don’t want any knock-on effects from the Greek deal which would work against Ireland’s interests, and I think so far that is not going to happen.’

As an Irish Times hosted Reuters’ report notes

European media condemned the EU’s ‘shambolic’ Greek crisis management and fretted the region was pouring money down an endless drain by giving aid to discredited political leaders in Athens.

Some commentators said today a swelling popular backlash in Greece against yet harsher frugality was driving the country towards the disastrous default a rescue is supposed to prevent.

The BBC have also collated some of those commentators’ views.  And an Irish Times editorial joins in

We are two years into the crisis, as Pat Cox said on Friday, and there is no sense that the EU is ahead of the curve, only of an endless rearguard action against the markets, cobbled together adhocery.

What is missing in what has drifted by default into an existential crisis for the euro zone is a long term unity of purpose to give the euro the solidity and authority which this one-winged bird of monetary union was not given at Maastricht – a political union. As Joshka Fischer, Germanys former foreign minister, argues in an important article reprinted in the Dublin Review of Books : “The current European crisis is only superficially a financial crisis; at its core, it is a political crisis triggered by the political weakness of the EU and the Euro Group.”

Well, it’s certainly one option…

Arthur Beesley in the Irish Times describes the extent of the problem

EURO ZONE finance ministers gathered last night in Luxembourg for another round of emergency talks on the financial and political crisis in Greece. They may be edging towards a new bailout for the country, but the situation is fraught with uncertainty and risk.

The talks, which resume today, will continue into next month. Although EU leaders meet for their summer summit in Brussels on Thursday and Friday, no settlement is expected at that point. The issues are too complex, the interests too diverse, the politics too difficult. In Brussels the mood is gloomy. Similar strain is evident elsewhere.

And, as he goes on to say

Most analysts – and more than a few politicians – believe Greece will never be able to repay all its debt. But that doesn’t make them any more willing to confront the problem now.

There are no neat answers here, no opportunity for fancy political footwork and little confidence that an acceptable solution is to hand.

Indeed.