Eurozone: Friendly fire or collateral damage?

We continue monitoring the new era of European disintegration, especially in what is still known as a eurozone of 332 million inhabitants in 17 countries.

Yesterday, chancellor Angela Merkel noted how closely the break down of the euro was related to the fate of the whole European project:

Scheitert der Euro, steht das europäische Projekt insgesamt auf dem Spiel.

(Merkel's full ”Stabilitätsunion” speech in Magdeburg.)

The Financial Times tells us that the German Bundesbank opposes ECB bond buying (22 August), still. Spiegel Online International reports that president Christian Wulff has joined the prominent opponents in Germany: German President Questions Legality of ECB Bond Purchases (24 August 2011).

For good measure, the German Bundesbank criticised the decisions of the 21 July 2011 eurozone summit on the second Greek bail-out and the added flexibility of the EFSF, as well.

In the context of the second bail-out of Greece, in the blog post Eurozone issues collateral and honesty (24 August), we saw the eurozone summit statement and the following deal on collateral between Finland and Greece. The eurozone partners did not warm to footing the bill, but for the government of Finland it remained a question of how, not if, collateral will be given.

Peter Spiegel on the FT Brussels blog continued by asking [UPDATED] Will Finland sink the Greek bail-out? (24 August). Markets and market watchers were becoming jittery.

The Open Europe blog looked at positions taken by leading politicians, country by country: Collateral Thinking (24 August 2011).

(By the way, the populist True Finns (Perussuomalaiset) have just decided to call themselves The Finns in English.)

Ruth Berschens in Handelsblatt tells us today that the collateral for Finland is off the table. The headline sounds conclusive: Sicherheitspfand für Finnland ist vom Tisch (25 August). However, the euro area governments seem to be discussing real estate as collateral.

If they reach no positive outcome, the Greek bail-out may unravel, and with it the eurozone as we know it.

We could then be left wondering if the eurozone broke up and the EU declined through friendly fire or as collateral damage.

***

The new articles on 841 euroblogs are just one click away. Follow and participate in the discussion about the eurozone and other European issues on multilingual Bloggingportal.eu, an important part of the European public space.



Ralf Grahn

Eurozone issues collateral and honesty

The Finnish government has (admittedly, because of domestic political weakness) consistently demanded collateral for the second bail-out of Greece. This precondition was, somewhat obscurely, recognised by the eurozone summit 21 July 2011.


Protesilaos Stavrou

The euroblogger Protesilaos Stavrou has written an interesting piece on the effect of the demands for collateral as a precondition for approval of the second bail-out of Greece: Demands for collaterals show lack of a collective spirit (24 August 2011).

Finland set the snowball rolling, so I wrote two blog posts about the root causes and the events in Finnish: Suomi näyttää: Euroalue on korttitalo (23 August) and Suomen Kreikka-vakuudet vastatuulessa: Mistä tämä kertoo? (24 August 2011). (Why not try machine translation?)


Eurozone summit

The government of Finland has, admittedly as a result of domestic electoral politics, set collateral as a precondition for participating in the second bail-out package for Greece.

Although preparation for and discussions in Euro Group and Council meetings remain murky for outsiders, these aspirations have been aired publicly long and often enough. They come as no surprise for the euro area partners.

The eurozone summit acknowledged this demand, although the language is less than crystal clear. See: Statement by the heads of state or government of the euro area and EU institutions; 21 July 2011; point 9:

9. Where appropriate, a collateral arrangement will be put in place so as to cover the risk arising to euro area Member States from their guarantees to the EFSF.

This agreement in principle was the basis for the deal between the Finnish and the Greek government, which the Ministry of Finance in Finland informed about in a 16 August 2011 press release (Finnish only).

The snowball effect and fears that the Greek rescue package could be delayed or even unravel, have suddenly led to a 'Nein' from Merkel and the need for new discussions to open the Gordian knot. For the government of Finland it is still a question of how, not if, collateral will be given.


Comment

Now, we should have the facts straight, in order to follow the next steps.

A few additional points.

I have little sympathy for populists who are keen to wreak havoc in the eurozone and consequently in the wider European and world economy, although I am far from certain that the structures of the eurozone are democratic and robust enough to succeed, or that the national political leaders are up to the challenges.

I understand that many people in the Mediterranean countries feel unkindly treated by less than generous remarks about their political system and national character.

However, the citizens and politicians in these countries need to take a deep and honest look in the mirror.

To put it crudely, can we expect European solidarity if citizens domestically cheat on each other through corruption or tax evasion?

Even if the lack of democracy and effectiveness at eurozone level are root causes of the euro area crisis, I would appreciate more reform-minded thinking from citizens in the weak eurozone countries, on how to enhance competitiveness, improve internal solidarity with regard to clientelism, tax-paying, corruption, governance, sustainable public finances etc. in order to embrace a brighter future in a globalising world and in Europe.

Honesty.

***

Follow and participate in the discussion about the eurozone and other European issues on multilingual Bloggingportal.eu, an important part of the European public space, with the new articles on 841 euroblogs just one click away.



Ralf Grahn