With debts in excess of 300 billion Euros, Greece is at the mercy of “outsiders” for financial aid. It is no longer a question of “if” Greece will need foreign help but more a question of “who” will help out. While Greece has raised some funds through the issuance of government bonds, it cannot handle this crisis alone. The million dollar (or 300 billion Euros) question is whether the European Union (EU) will come to Greece’s aid? To answer this one needs to look at some facts:
– The EU is an economic union with high levels of integration. Therefore the EU acts an one economy rather than different national economies.
– Many of the monetary and fiscal targets are set at the regional level rather than national level.
– While the Greek national debt may indicate a failure by the country in terms of compliance, one cannot ignore the monitoring responsibilities of the EU.
– A weak Greece has implications for the value of the Euro.
– And finally, if the EU cannot help Greece, then one may question the benefit of being part of the regional agreement.
The main argument against the EU involvement in the bail-out has been that such an action would set a precedent, and other nations in the region would become far less accountable if they believe that the EU would bail them out if they were in trouble. This argument may have some merit but does not provide a practical solution for this ongoing crisis.
While there is no doubt that Greece will be bailed-out, the question remains whether this will be under the EU leadership or an IMF package. The next few weeks will provide us with the final decision. Till then we can merely speculate at how the final decision may re-write the rules of regional trading agreements and economic unions.