Participation in Emu brings huge advantages. The benefits of joining a stable economic area are greatest for countries that were unable to deliver such conditions before. Thanks to the euro, Greece has enjoyed long-term interest rates at a record low. But instead of delivering on its commitment at the time of entry to reduce public debt levels, the country has wasted potential savings in a spending frenzy. The crisis with which it is now confronted is not the result of an “external shock” such as an earthquake, but the result of bad policies pursued over many years. Bailing out Greece would reward such behaviour and create moral hazard of a dimension hardly seen before.There are two points of note here. First, by referring to an "external shock," Issing is trying to preempt claims that, on the contrary, EU support for troubled Eurozone economies is possible. To Issing, there is no incident of force majeure here compelling the EU to bail out Greece; it was largely Greece's fault that it finds itself in this situation rather than any exceptional occurrence. As Tony Barber of the FT points out, however, Article 122 of the Lisbon Treaty states:
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, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.Second, conveniently forgotten in Issing's account are accession but not (yet) European Monetary Union members Hungary, Latvia, and Romania already feeding at the EU trough. Take Latvia. It has availed of "medium-term financial assistance" worth €7.5 billion mostly in the form of an IMF stand-by agreement together with contributions from Nordic countries and token amounts from the EBRD, World Bank, the Czech Republic, and Poland. See the EU site on how the second disbursement has already been released and the particulars of Latvia's Memorandum of Understanding. Essentially, this bailout is in the time-honoured format: further releases of money are contingent on the borrower meeting certain fiscal targets and the implementation of public sector belt-tightening measures. Yes, they're conditionalities and "structural adjustment" in so many words. The same pattern holds for the earlier precedent of Hungary receiving a combined €17B package and the later one of Romania receiving €20B.
The argument being put forward by Greek bailout naysayers is that this balance of payments facility was not designed for the situation Greece finds itself in. That is, it does not suffer from a balance of payments crisis or a lack of foreign exchange to purchase necessary imports but a (potential) difficulty in financing a rather large and growing fiscal hole. Again, however, Article 122 neither limits the coverage of support to BoP crises exclusively nor to non-EMU states.
Like before, I am convinced that the road ahead for the EU's Greek tragicomedy is to repeat the precedent set by Hungary, Latvia, and Romania. Instead of confusing the general public with hyperbolic statements on both sides, just say that the EU will lend to Greece if push comes to shove, but in tandem with the IMF. Doing so accomplishes a number of things. First, making conditionalities restrictive will have demonstration effects for other PIIGS--there would be less or no "moral hozard" arising from the ignominy of a Eurozone economy resorting to the IMF. Second, it will calm down this endless speculative feeding frenzy concerning what is basically a minor EU economy. Third, it does not break with recent historical precedent of what the EU has done with wayward member states.
Indeed, Greece is largely behind its messed up finances and yes, it's even fudged figures to disguise this fact. But, extending assistance does not necessarily invite further "moral hazard" provided that the process is humiliating and punitive enough to compensate for past indiscretions. Times are extraordinarily tough. Implying that Greece may soon face the wrath of Dominique Strauss-Kahn despite protestations from Athens to the contrary is long overdue.