Given that the Prime Minister is meeting German Chancellor Angela Merkel today at Chequers, and that a spokesman for the Prime Minister has said “The Chancellor and PM meet regularly and last met at the EU Council last week”, political analysts from The European Foundation, Margarida Vasconcelos and Jim McConalogue ask: ‘Is the German Chancellor here to get Britain on board a Greek bailout package?’
Given a scenario in which all Member States (not only eurozone states) would pay for an overall £13.3 billion (€15 billion) EU contribution, the United Kingdom would be requested to pay £1.96 billion (€2.2 billion) of that amount under the following breakdown of contributions (in euros, billions):
Czech Republic 0.2214
The £22.2 billion Greek question and the systemic failure of the eurozone
Given the reports that Greece’s aid emergency is worth between £17.7-22.2 billion (€20-25 billion) and provided on the basis that £13.3 billion (€15 billion) will come from eurozone countries and £8.9 billion (€10 billion) will supposedly come from the International Monetary Fund, serious questions must now be asked about plugging the black hole in the eurozone bail-out given that the Greek situation is part of a wider systemic crisis.
Greece is set to be the first eurozone country to be rescued in the euro’s 11 year history. Greece’s budget deficit has reached 12.7% of GDP and it has a debt of 124.9% of GDP. In fact, Greece’s debts are expecting to reach £257 billion [€290 billion] this year. Greece’s borrowing needs for 2010 have been estimated around £48 billion [€54 billion]. It is reported that Greece has to raise £17.7 billion [€20 billion] by the end of May.
The bailout plan
Brussels have previously denied any plans to bailout Greece. In fact, Member States have been split over a potential aid package for Greece. Whereas Germany has been against an EU bail-out for Greece, favouring a greater role for the IMF in any rescue plan, France and other eurozone countries believe it should be the EU and not the IMF to help Greece with its debt problem.
On 15 March, the Eurogroup Ministers agreed to provide financial aid for Greece – in case they should need it – but have revealed no details of a potential emergency plan. Such a rescue plan will have a major impact on EU taxpayers though prospective agreements have been kept in the dark. It is largely characteristic of Brussels to hold major negotiations behind closed doors.
European Treaties and the stipulation against bailouts
It is important to recall that under the Treaties there is no such entity as a “bailing out” clause for eurozone countries. In fact, the Treaty forbids Member States from being liable for the debts of another Member State. Article 125 of the TFEU states “The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”
However, Article 122 of the TFEU provides "Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the council of ministers, on a proposal from the European Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. (…)" Nevertheless, Member States must not forget what they have agreed at Maastricht. Moreover, Article 123 TFEU provides that “Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (…) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.”
The Franco-German Bailout “agreement”
On 26 March, the Eurozone leaders agreed on Greece’s aid plan, drafted by Angela Merkel and Nicolas Sarkozy, combining bilateral loans from eurozone countries and IMF support. According to a statement by the heads of State and Government of the Euro Area a funding package will involve “substantial International Monetary Fund financing and a majority of European financing …” This was clearly a request from Angela Merkel. Germany has accepted European financial aid for Greece but, on the condition, of the IMF being involved and making a "substantial contribution" to any emergency aid. According to the statement only Eurozone countries will “contribute to coordinated bilateral loans” and “any disbursement” of these loans will be decided by eurozone Member States by unanimity, “based on an assessment by the European Commission and the European Central Bank.” Such loans will be subject to non-concessional interest rates, “(…) i.e. not contain any subsidy element.” It seems contributions from eurozone countries to a potential Greek bail-out will be voluntary but all 15 countries have already shown their readiness to contribute. They will contribute to the support mechanism according to their proportion of capital in the European Central Bank. Moreover, the Eurozone leaders agreed that such mechanism will be only activated if the Greek government asks for financial support and it will “be considered ultima ratio, meaning in particular that market financing is insufficient.”
Moreover, they stressed that “Decisions under this mechanism will be taken in full consistency with the Treaty framework and national laws.” According to EuropeanVoice, Barroso has said “The mechanism we have proposed for assistance does not clash with the ‘no bail-out' clause or with national constitutions. We have checked…” However, the Eurozone leaders have made no reference to the legal basis which could be used for the Greece’s support mechanism. The Eurozone’s statement also fails to provide any figures. However, it has been predicted that Greece’s aid emergency could be worth between €20-25 billion. According to Jean-Claude Juncker, Eurozone countries will provide two thirds of the financial help through bilateral loans whilst the IMF will contribute with one third, if Greece cannot raise the funds on capital markets. It has been said that €15 billion will come from the Eurozone countries and €10 billion from the IMF.
Brussels wants to show solidarity towards Greece and to ensure eurozone credibility. However, all EU Member States are facing financial difficulties – Greece is not the only Member State which is introducing public sector pay cuts and tax increases. German taxpayers will make the biggest contribution as Germany’s proportion of capital in the European Central Bank is 18.93%.
Although the majority of eurozone countries and the European Commission have been rejecting the idea, with Joaquin Almunia, the former Economic and Financial Affairs Commissioner saying “We don't need to call in the IMF," the Eurozone leaders agreed, at Germany’s request, on calling, the IMF to provide financial support for Greece. Brussels does not have the IMF´s experience in rescuing countries facing financial difficulties, but as Jean-Claude Trichet, President of the European Central Bank, has said "If the IMF or some other body exercises the responsibility in lieu of the Eurogroup or instead of governments, it is evidently very, very bad …” According to Ms Merkel, “Europe is not able to solve such a problem alone.” The Eurozone is unable to solve the crisis. According to the Eurozone leader’s statement the majority of financing will come from eurozone countries but this gives nothing more than an illusion that eurozone can sort out this problem and indeed its wider systemic crisis. The IMF will be called to solve a eurozone issue, which damages its credibility and shows its weakness.
From the outset of the last EU summit, it has been clear that the eurozone plan is unworkable and will not help Greece. The eurozone states have yet to confirm their agreement to a package. The IMF is also yet to confirm its agreement with the Commission. The European solution, driven by Germany, has been to cover up the symptomatic economic failures of a eurozone – providing external aid packages to patch up its own internal fiscal deficits – but has done nothing to address its serious economic failures.
Following Angel Merkel’s persistence, eurozone leaders also agreed to strengthen the Eurozone’s budget deficit rules. They called for greater economic co-ordination between Member States. The Eurozone leaders “consider that the European Council must improve the economic governance of the European Union” and, therefore “propose to increase its role in economic coordination and the definition of the European Union growth strategy.” According to the Eurozone leaders “The current situation demonstrates the need to strengthen and complement the existing framework to ensure fiscal sustainability in the euro zone and enhance its capacity to act in times of crises.”