European Union Considering new EU Bonds to Bail out Greece
It’s been a busy week in Athens. First, some 60,000 Greeks marched through the streets in response to government austerity measures — spending cutbacks and tax increases. The demonstrators ended up leaving the public services in disarray, crippled without workers. Afterward, the riots started… police used tear gas and the mob threw stones and Molotov cocktails. You can see AP video coverage of the mayhem below.
In light of the chaos, not just in Greek streets, but also for its currency, the euro, it’s no surprise that EU ministers are busy considering options for bailing out Greece. The notion of a European Monetary Fund, similar to the IMF, was considered pretty interesting for a while. However, more recently the action is focused around the possibility of issuing new EU bonds guaranteed by the governments in the euro area…
According to Bloomberg:
“EU finance ministers are set to discuss whether any Greek bailout should be funded by EU bonds guaranteed by euro-region governments or be in the form of loans from the 16 euro nations, three people briefed on preparations for the meeting said on March 12.
“’Certainly we are not at the stage where we need to opt’ for a specific course of action, Lagarde said yesterday. ‘It’s far too important to force the issue.’
“European officials are working on contingency plans for a Greek bailout, though German Chancellor Angela Merkel has so far refused to give the green light for any aid. Greek bonds stabilized in the past month as the EU said it would support Greece.
“Lawmakers in Athens this month passed a 4.8 billion-euro ($6.6 billion) package to cut a deficit that was 12.7 percent of gross domestic product last year by 4 percentage points.”
Of course, the $6.6 billion deficit-cutting package is exactly why Greeks were marching and then rioting in the streets. Austerity measures are painful for the citizenry to endure. Public servants in particular, as shown in the above video, can get both a salary cut and a tax increase in one fell swoop.
The cries for the US to adopt similar austerity measures may be showing up with increasing frequency these days. The Greeks have made a pretty good example of what not to do, and the US still has a chance to make cuts that are not so deep, and tax increases not so high. Because the longer fiscal responsibility is put off, the worse the recovery process will necessarily have to be.
You can learn more about the situation is unfolding in Europe by reading Bloomberg’s article on how it’s doubtful there will be any decision on aid to Greece this week.