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Friday, January 29, 2010

Another twist

Here's another thought for the weekend.

Apart from the legal obstacles (at least on paper) involved in giving emergency support to Greece - something we've touched on many times before - there may be a second legal hurdle that EU leaders have to clear if they wish to come to the rescue of struggling neighbours.

Le Monde yesterday suggested that EU leaders consider the common issuance of debt by voluntaring eurozone member states, as a possible way to kick start the bail-out of Greece.

But such an option isn't spot-on legally either. According to German EU Law Professor Matthias Ruffert (FAZ interview here), for example, the German government would not be allowed to lend money to Greece in that way. "That's impossible" he says, adding that "the ban for governments to bail out banks also extends to governments. When a state gives a credit facility to another one, this is in breach of the EU Treaty". He cites article 123 of the EU Treaty:

"Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) 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."

It seems as if the betting has now really started: bail-out or no bail-out. (And everybody can participate by buying Greek bonds. The Chinese, known as quite the gamblers, seem to have passed on the opportunity).

WSJ correspondent Adam Cohen thinks it's going to be a bail-out, arguing: "The credibility of the euro, perhaps the bloc’s grandest project and still a young one, is more important than a simple moral lesson for spendthrift politicians." And he's not the only one to say so.

But, remember, somewhere in all of this there is also the citizens and taxpayers of Europe. And they may not be that keen. As a poll commissioned by us last June showed, 70% of Germans are against using their own money to bail out other EU countries.

Whether small matters such as public opinion will stop EU leaders from pressing the button is of course a completely different story.

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