The Euro Crisis: The Insolvent Are Expected to Bail Out the Bankrupt

The euro crisis is far from over. Markets are reacting with skepticism to the largest bailout ever – an attempt to prevent the bankruptcy of Greece. Former Eastern Bloc countries, such as Slovakia, are now expected to bailout Greece. On Sunday the IMF and the 15 other Eurozone countries – the member states of the European Union (EU) which, together with Greece, use the euro as their common currency – agreed to bail out Athens with bilateral loans totaling €120bn ($160bn) over the next three years. Many of these 15 countries, however, have huge debts themselves. They have agreed to help Greece, hoping that someone (read: Germany) will come to their rescue, too. Will Berlin and the IMF be able to save them all?

Polls show that between 66% and 86% of the Germans are opposed to bailing out the Greeks. Nevertheless the German government says there is a “good chance” of getting the Bundestag to agree to the bailout by Friday. Germany has to pay €22bn of the €120bn – the largest share apart from the IMF, which pays €40bn. Nevertheless, 76% of the Germans expect that Greece will not be able to pay back the loans it receives. The German political establishment, however, feels it has no other choice but to come to the rescue of the Greeks. “It is about recognizing our national responsibility within Europe,” German Finance Minister Wolfgang Schäuble said.

German Chancellor Angela Merkel long resisted the plans to bail out the Greeks. Last week she changed her mind. One of the people who rang her to ask her to bailout Greece was U.S. President Barack Obama. Merkel insists, however, that the Greeks implement harsh measures, “not just for one year but for several years.” Merkel said on German television that due to the bailout she would not be able to keep her election promise of a tax relief.

In exchange for the bailout, Greece must introduce draconic austerity measures. The IMF and the EU demand €22bn in new budget cuts over three years, on top of cuts already announced. Greece will raise its retirement age from 62 to 67 years, salaries and pensions in the public sector will be frozen, annual holiday bonuses will be capped and scrapped for higher earners, VAT will rise from 21% to 23%, and there will be a 10% hike in fuel, alcohol and tobacco taxes. The German weekly Der Spiegel writes that the IMF expects to have to remain in Greece for ten years until the economic reforms have been realized and successfully implemented.

The Greeks trade unions reject the austerity plan. A general strike hits the country today and tomorrow. On Labor Day there was severe rioting. Anarchists threw petrol bombs, attacked banks, shops and hotels, and clashed with riot police outside the Finance Ministry in Athens, while thousands of Greeks, mobilized by the trade unions and left-wing parties, demonstrated against the austerity plans of the government. Polls suggest that more than 50% of the Greeks are prepared to take to the streets to stop the government plans. Greek Prime Minister George Papandreou has promised the IMF and the EU that the cuts will be implemented

The markets, however, are not impressed. In early February Papandreou promised similar austerity measures, but did not live up to his promises. Earlier this week, French Foreign Minister Bernard Kouchner warned that there are no guarantees that the massive bailout for Greece will prevent fallout from spreading to the other countries of the eurozone. The government of Slovakia, a country that is expected to contribute $1bn to the Greek rescue plan, announced that it will not immediately contribute its share. “I don’t trust the Greeks. The approval [of the austerity plan] by the [Greek] government is not enough. We want to see laws approved by the parliament leading to cuts in salaries, pensions and social benefits. Until then the Slovak cabinet will not authorize its loan,” Robert Fico, the Slovak Prime Minister said. The Austrian Finance Minister, Joseph Pröll, warned that Europe is “losing patience” with Greece. “when we watch the protests, our patience, mine and the rest of Europe’s, is almost at its limit,” he said.

Last week, rating agency Standard & Poor’s downgraded Greek bonds to “junk.” The Greek crisis threatens to bring down the entire 16-nation monetary union. Contagion has already spread to Portugal and Spain, whose bonds were also downgraded by international rating agencies.

Spain, meanwhile, is trying to convince the markets that it will be able to solve its budgetary problem independently. “Spain is able to pay its debts. We will not need help,” Elena Salgado, the Spanish Minister of Economics, said last week, assuring that Spain would cut its deficit from 11.4% to 3% by 2013. The general expectation is that if the Greek and Portuguese dominos fall, Spain will follow. The irony of the situation is that Portugal is expected to contribute about €2bn of the €120bn in bilateral loans to Greece, and Spain some €8bn. Italy and Ireland, who are also burdened with debts, are to contribute some €12bn and over €1bn respectively. In other words: The insolvent are expected to bail out the bankrupt.

It is clear that the latter is impossible. The euro is doomed. In the Netherlands, opposition leader Geert Wilders advocates the reintroduction of the Dutch guilders. “If Greece reintroduced the drachma, that would be the best possible thing that could happen to our euro,” the German tabloid Bild argues. This is also the opinion of Bill Emmott in the British newspaper The Times, who writes that Northern Europeans should “accept the need to exclude Greece from the euro.” Mats Persson of the British think tank Open Europe says that “an alternative would be for the eurozone to split into a German-led inner core and an outer core made up of a weaker group of countries, which would not include Greece.”

Decent # 2

I agree with Capo.  Decent Europans are no more lost to the cause of Western civilisation, i.e. of human (individual) freedom, than decent (but misguided) leftist Americans are.  Which is not to deny that the behavior of European political- and media elites in recent times has been particularly galling to freedom-loving Americans.

Decent #3

I think everyone will agree that the politically inert and silent are not effective in defending anything, even if not permanently "lost."

"Decent" Europeans

are neither immaterial, nor lost to the cause of Western Civilization.  To assert such, places one outside and in opposition to the civilization one claims a monoply on possessing and defending.


You wrote:  "We cannot expect Europeans to place a high priority on correcting each other's views about the U.S.A."  Yes, we can.  I certainly do.  You also wrote:  "We get a surprising amount of support as it is."  No, we don't.  I've certainly never received any.


I certainly do not believe what you assert.  Clearly, the slumbering majority of Europeans--decent or otherwise, that's immaterial--is lost to the cause of Western civilization.  And of course it is a sign of cowardice if you let arrogant and ignorant slander of Americans go unrebuked when you know such slander does harm to the cause of Western civilization but you figure it would cost you too much to speak up.


I think someone needs to read Reconciler's post more closely. "Not always" > "silent."


KO:  It's true that the lefty elites in America are as nauseatingly condescending and anti-American as the Europeans, but I can't blame this all on them.  The Europeans are, ultimately, the problem here.  As even Reconciler admits, he has not had the balls to rebuke the European hypocrites in person.  At best Europeans like Reconciler will sign on to a web page like this one and assert, in an anonymous posting, that they aren't arrogant like other Europeans.  But it costs them nothing to do so, and it doesn't challenge the general arrogant atmosphere toward Americans.

Re: Frank Lee

From your response I gather, that you are trying to poke me in places where it hurts. You are smashing in open doors, as we Germans say. I have said that "I have not always defended" the USA against arrogant and ignorant slander of my fellow countrymen. By that I mean to say, that I had fallen for the leftist ideology in my youth but I grew wiser despite the odds.

I may not have invested all my energy and time into defending western civilization but calling that cowardice seems a bit harsh. I assume that you amassed a good amount of anger that lets you lash out like that. You may believe it or not, but the slumbering majority of decent Europeans is not lost to our cause.

Reconciler: Silent/Nonexistent--what's the difference?

Reconciler:  You assert that the arrogant constitute but "a fraction" of the total European population.  It is immaterial whether there are Europeans hiding somewhere who actually, in their heart of hearts, do not consider themselves categorically superior to Americans.  As long as those folks (yourself included) remain silent and don't defend their "brothers" across the Atlantic, the effect is exactly the same as if every European were arrogant, hypocritical, and self-absorbed; as long as the loud, high-profile Europeans go unchallenged by the likes of you, then the likes of you might just as well not exist.  It's therefore time you asked yourself why you don't rebuke the arrogant blockheads in person.  What exactly accounts for your cowardice?  At least you admit you have been remiss--that's progress.


@Frank Lee: We cannot expect Europeans to place a high priority on correcting each other's views about the U.S.A. We get a surprising amount of support as it is, in view of the fact we paint them with as broad a brush as they paint us. When it makes sense for them to speak up for us is when anti-Americanism is being used as a vehicle to deprive them of sovereignty, self-government, self-defense, property rights, and ethnic identity. Only then, if they prefer the brief pleasure of scapegoating Americans to the secular struggle against tyranny dressed today as European patriotism, do they deserve your reproach. In any case, you have come to the wrong place if you expect the prevalent anti-Americanism to be expressed here, even under provocation. There is a hundred times more of it every day in every comments section of every web-published newspaper in the United States.

Thanks for your reply, written while I was slowly typing this comment on a PDA. I beg your pardon if I went too far speaking for you. Agreed, lefty superiority is at least as prevalent among Europeans as among Americans, but here we are dealing with a remarkable and unusual group. By all means encourage Reconciler to say good things about us, but it is more important that he speak against the subtext of submission to tyranny that underlies the anti- American message.


How is it possible to rate UK with an 'AAA' with a defice of pound, that's 12% GIP, more than Greece. Shouldn't there be a light 'minus', at least?

It's not the Europeans,

Reconciler, who have spent the last two centuries telling us knuckledragging Americans that we need to be more compliant, more obedient, more respectful of wealth and power, more reverent towards European fashions, etc., etc. It is our own lefty elites, whose Europhilia is a self-serving ideology used to aggrandize their own political and cultural authority. Remember John Kerry? A complete moron and Europhile nincompoop, not to mention a spineless traitor, but heralded by the leftist elite as "so intelligent" when he ran for president. So Frank Lee, I believe, was not casting aspersions on Europeans he has known so much as enjoying the ongoing but costly refutation of the idiots that call the shots in the U.S.A. Frank: when the next civil war starts, I will look for you on the barricades!

By the way, we are Europhiles of another stripe, or we would not spend so much time reading and writing to our friends on Brussels Journal.


Having been told all my life how much smarter Europeans are than Americans, how much better educated Europeans are, how much more sophisticated, how much more worldly, how much more mature--well, I'm enjoying this tremendously.  How could the Western Europeans (with admirable exceptions:  the Brits, the Danes, the Swedes) have been stupid enough to trust the Greeks to tell the truth about their finances?

@Frank Lee: you are used to bad company?

Maybe you should choose more wisely, who you care to acquaint yourself with. It almost sounds like you never met a decent European in your life.

As a European, I have not always defended our brothers beyond the Atlantic against the hypocrisy of some of my fellow Europeans. You might have exaggerated in your post or you might actually believe that stereotype, but I can assure you that the arrogant and self-absorbed Europeans are but a fraction of the population.

As for "trust". Nobody ever trusted the Greeks. Trust is not a major concern in the politics of the European Union. It is all much more a matter of blindly pushing an agenda. Trust needs honesty and adherence to/understanding of the laws of (human) nature, something that widely escapes the current elites.

They weren't and they knew

They weren't and they knew it. But since others fudged their numbers too, to a lesser or greater extent, they thought it wouldn't matter much and they could shove it under the carpet.
Lesson from the crisis: When you're trying to compete with the US dollar, numbers always matter.

RE: The insolvent bailing out the bankrupt

Certain foreign papers, such as Canada’s Globe and Mail, are parroting Stavros Nassis’ defense of Greece and attack on Germany, even referring to a “German Empire”.  Merkel is in an incredibly difficult position; she might as well be in the Führerbunker in April of ’45 moving non-existent “divisions” around on a map.  The will of the German people is clear, and until very recently she acted in accordance with it, defying powerful rent seeking and free riding interests throughtout Europe, as well as the will of Bruxelles and Paris. 


By itself, Greek solvency is irrelevant to Germany.  Unfortunately, the German financial sector cannot afford a financial crisis, given its heavy investments in the less developed European economies both in and outside the EMU.  German financial institutions want to stabilize investor confidence in the euro and EMU as quickly as possible, even to the detriment of the long-term.  Expelling Greece would only make investors ask: who’s next?  Re-defining the EMU or returning to the Deutsche Mark could not be done easily or quickly.  Bailing Greece out is a short-term fix which will cause anxiety similar to that over the fallout of TARP/ARRA.  But then again, aren’t US markets rallying and isn’t the US economy recovering? 


German banks are no different than American or British ones.  Their idea of “corporate responsibility” is to agitate for reduced taxes and regulations – needless “red tape” such as that which tied up the derivatives market – until they need public money.  Just as the Soviet nomenklatura became "businessmen", US investment bankers suddenly became socialists.  Commentators here argue over ideology, but ideology seems to be expendable for people faced with losing money and power.

Political reasons

The Euro was introduced for political reasons, not for economical reasons.

The only cure that would possibly have helped was to reintroduce the Drachme. For political reasons this was not done.

Now it is too late. Perhaps it would help if Portugal and Spain were expelled besides Greece. That won't happen, off coarse, for political reasons.

When that will be too late, Germany, the Netherlands and perhaps some other countries will have to step out of the Euro. For economical reasons.