What’s the E.U.’s plan to help Greece?

Stephen Beard Feb 11, 2010
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What’s the E.U.’s plan to help Greece?

Stephen Beard Feb 11, 2010
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TEXT OF INTERVIEW

Kai Ryssdal: The euro gave ground against the dollar today. Alkso against the yen. And against the British pound sterling. That’s probably not the result European Union officials were hoping for after their meeting on the great Greek debt crisis of 2010. But then again, they didn’t really say much about how they might help Athens avoid a default. Here to help explain what they might do is our European bureau chief, Stephen Beard. Hello, Stephen.

STEPHEN BEARD: Hello, Kai.

Ryssdal: As far as we know them, Stephen, what does this plan, this rescue plan I guess you could say, contain?

BEARD: The details are pretty thin on the ground. I mean what we had today was a lot of verbal support for the Greeks, a lot of fine talk about backing the Greek government to the hilt with coordinated measures, but no actual specifics. The likelihood is that if the Greeks come under sustained attack again, and if they’re unable to borrow or if they even default, then the rest of the eurozone will step in and guarantee Greek government bonds. But in return, the EU is demanding the Greeks must carry out their pledge to cut their public spending and bring down their budget deficit.

Ryssdal: And therein lies the rub, right? So what are the odds of the Greeks actually doing that?

BEARD: The omens aren’t good. We’ve seen this week some really big protest rallies in Athens even before the cuts begin to bite. People have been out protesting over the planned freeze in public sector pay. Air traffic controllers have been on strike. Even tax collectors walked out, which is hardly going to help a government that’s struggling to balance the books. Greece is in a terrible mess. And as Neil MacKinnon of VTB Capital points out, deficit reduction there is going to be very painful.

NEIL MACKINNON: Further cuts in spending could well be very damaging, destabilizing, put them straight back into recession, as well as resulting in an escalation of social and political discontent.

RYSSDAL: All right, Stephen, so here comes the what’s all the fuss about question. You ready?

BEARD: Yeah.

RYSSDAL: So for as nice of a place as Greece is, its economy is a small percentage of the entire European economy. But if you look at some place like California, a much larger economy in arguably worse shape, there’s no bailouts coming over here, so what is this actual crisis all about?

BEARD: It’s about the fear of contagion. It’s the domino theory. The idea is that if Greece defaults that raises a giant question mark over other European countries in a similar situation — Spain, Portugal, Ireland, even Italy — and if they defaulted, and their economies went into a tailspin, big German and French banks would take a massive hit. You know, German banks alone have lent more than a quarter of a trillion dollars to Spain, more than $200 billion to Ireland. Then there’s the bigger worry that mass defaults by these countries, which makeup about 20 percent of the output of the eurozone, would seriously undermine confidence in the euro as a currency.

Ryssdal: And that would trickle down through the rest of the global economy.

BEARD: Indeed.

Ryssdal: All right, then next steps for Greece and the eurozone, Stephen.

BEARD: Well, there is undoubtedly a question about the future of the euro. This whole crisis has exposed or at lest put the spotlight on a fundamental flaw in the euro. It is a currency without a country. You’ve got one currency, one central bank, but 16 different governments. There is no one central authority controlling these eurozone budgets, so this tension between countries that keep their public spending under control and those that don’t is bound to erupt from time to time. And one result of this crisis could be that the European commission is going to take a lot more control over the public finances of eurozone member states. That’ll mean a loss of sovereignty. It’s already started in Greece, and many Greeks don’t like it. They see this creeping control by Brussels as a kind of Trojan horse, and the Greeks know all about Trojan horses.

Ryssdal: Yeah, and we all know how that one turned out. Stephen Beard at the European Desk in London. Thank you, Stephen.

BEARD: OK, Kai.

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