Toronto – Canada
At a time like this it is impossible not to write about the events unfolding in Athens. Prime Minister Papandreou has been orchestrating his country through a modern Greek tragedy that would make Oedipus scratch his head. This story has more angles then a Picasso painting but the most important element will be its implications on the viability of the European Union.
A look inside the meeting of G-20 members as they discuss the Greek situation, photo courtesy of Alyssaravenwood.com
As of now the specter of a referendum has faded due to Papendreou’s flip flop a la John Kerry. Had the Greeks voted against the bail out package it is quite certain that the EU’s strongest members (Germany, France) would have considered kicking Greece out of the EU. Although this has become less likely it may have started an important dialogue regarding countries that cannot stay within their budget deficit. As of now the EU has no punitive mechanism for countries who cannot reign in their finances, therefore there is no incentive for countries to stay within the EU budgetary parameters, a malaise seen in Italy, Portugal, Spain and Ireland. It may be too late to be having this conversation, almost like discussing a prenuptial before signing your divorce papers, just ask Paul McCartney.
Which leads me to my next question, “should we just stay together for the kids?” Is it worth it for the EU to spend billions, if not trillions on supporting Greece for the next couple of years, or should they just cut them loose? If Greece does not accept the bailout package, the money could be better spent bailing out French and German banks and making sure the stronger economies remain that way.
The argument for this would be that if all the bail out money goes to Greece then banks in other parts of Europe will take a serious loss on their Greek bond investments (which will not be paid out). If Banks take a loss they have less credit, less credit means businesses and consumers suffer which leads to less economic growth. So not only will Greece be suffering but so will the rest of the EU.
The interconnectedness of the EU economy has been touted as one of its strengths but presently it looks like a major weakness. The current situation stands as one of the most important tests of the EU experiment, if Greece goes will there be others? Or if Greece is bailed out will there be others? It is a mess. The worst part is that the EU has no previous mechanism to answer these questions, it is lost at sea and the crew is fighting over the steering wheel.
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