Tag Archive: Bailout

Greek Financial Crisis and a Possible Exit

When discussing the European Union, it would be hard to escape discussing Greece and its financial situation. Greece has been in dire straits financially and has been at the epicenter of Europe’s financial crisis. With much debate and doubt surrounding Greece’s future with the EU, Greek Prime Minister Antonis Samaras has stated that “exiting the euro would be a ‘catastrophe’ for his country.”

Austerity, a word so popular in Europe that it became Merriam-Webster’s 2010 word of the year is once again at the center of the Greek Question.  Greece needs to cut 11.5 billion euros in spending to qualify for the next 33.5 billion euro installment of their 130 billion euro bailout package. Greece says it needs more time to make the cut–4 years instead of the original 2 years.

These financial troubles bring to light the legal issues concerning Greece’s relationship to the EU as a member state. Member states to of the EU enjoy a strong economic union but also sovereignty. Europe is now facing financial collapse and has forced Greece to go along with its austerity plans, which have been referred to by John Lauhgland as brinkmanship which is essentially a political game of chicken where one party forces an opposing party to make concessions by allowing volatile economic or political issues to reach a critical.  John Lauhgland writes that “the European political class, by issuing this warning, is trying to make it clear to the Greek voters that they have to choose the euro and they have to choose the austerity program.”  The European political class, continues to try and control the Greek electorate. The near future holds what a Greek expulsion from the Eurozone means for the stability of the European Union.

Greece’s future in Europe continues to look bleak. A prominent German politician, Rainer Bruederle,  has even stated that when this bailout has been paid in full, another one would not follow. This shows that Greece’s problem is a long term one, and there is no quick fix through a bailout; this isn’t General Motors, it is an entire country. Mr. Bruederle states that “We Germans are Helpful, but we’re not stupid.” In the words of George R.R. Martin, Winter is Coming for Greece, and we shall see if she can survive the long winter.

German Support of Bailout In Question

Germany’s judiciary, Bundestag, and Bundesbank launched raised serious questions about the viability of Germany’s continued leadership in providing legal and financial support of bailouts to struggling EU nations.  Chancellor Angela Merkel is in the difficult position of keeping Germany as a leader of the EU in its greatest crisis, while at the same time addressing dissent at home.  Time is of the essence, as the coming weeks will determine the likely fate of the European currency and Germany’s role as a leader holding the currency together.  Germany’s role is essential, as it contributes over 25% of bailout funds.

First, Germany’s Federal Constitutional Court is currently reviewing the legality of the EU’s latest bailout package which amounts to nearly half a trillion Euros.  The question for the court is whether the latest bailout violates German fiscal sovereignty or Treaty law.  Experts on the situation forecast that the bailout will survive legal scrutiny, but the court will admonish the government for not going through the Bundestag.

Adding to the Chancellor’s headaches, twenty-three members of Chancellor Angela Merkel’s own party announced their intention to vote against the bailout package.  While the bill is likely to pass, the Chancellor may have to use opposition support.  Such a loss of support from the Chancellor’s own party calls into doubt the stability the government.

Finally, one of Germany’s financial institutions, the Bundesbank issued a statement criticizing the European Central Bank’s bond purchases and said that the “EU is drifting towards debt union without democratic legitimacy or treaty backing.”  Furthermore, the Bundestag is debating a bill allowing the European Financial Stability Facility more capital as well as the power to recapitalize banks.  The bill is scheduled for a vote at the end of September.  Analysts believe up to another €2 trillion is needed to stop the contagion that is spreading through Spain and Italy.

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