Getting Tough with Greece

Greece’s financial crisis has brought to the surface the residual North versus South prejudice that lurks in the European Union. In private — or mostly so — Brussels officials from northern member countries tend to talk of Spain’s economic “plight,” but Greece’s “mess.” There is some sympathy for Madrid and its problems, but little more than irritation and impatience for Athens.

As Greece’s fiscal crisis drags on, there is more wistful talk of an “extreme solution” that would require Greece to request a temporary suspension from the European monetary union. An exit clause in the Lisbon Treaty for member states wishing to withdraw from the European Union could probably be fudged to cover the situation.

The way would then be clear to arrange a bailout for the European banks — mainly German — burdened by Greek debt. While a direct EU rescue of Greece is widely opposed in Europe, there is judged to be less opposition to bailing out the financial institutions of other European countries hard hit by its insolvency.

Meanwhile, Greece would revert to the drachma, which would have to be devalued. Becoming detached from the EU financial framework would not, of course, solve Greece’s problem — far from it. But it would make it Greece’s problem, not the EU’s, leaving the Greek government alone in trying to negotiate the country’s salvation, presumably with IMF help. There would, incidentally, be no timeframe for Greece’s return to the euro structure, and there are people in Brussels who question whether it would ever, or should ever, happen.

The danger with this solution is that it sets a precedent, although less so if other financially ailing EU members, notably Spain and Portugal, received a stimulus package at the same time to shore up their own ailing economies. The other probable proviso would be that the EU bailout would go to European lenders, but not to foreign ones (read: American). Nothing would ignite European taxpayer resentment more than lavishing yet more bailout money on Wall Street.

The other flaw in this scenario, other than its potential damage to European cohesion, is that Greece would have to be persuaded to request the suspension – a tall order considering that the Greek government has shown very little actual contrition over the debacle.

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