More on Greece Post author By Philip Lane Post date February 8, 2010 The FT Analysis page is today devoted to the Greek situation: you can read it here. In addition, there are two opinion pieces —- Wolfgang Munchau advocates a eurozone solution here. Charles Wyplosz cautions against a bailout here. Categories In EMU Tags Greece 5 Comments on More on Greece ← Upcoming Events → Even more on Greece 5 replies on “More on Greece” Without a single political authority, eurozone countries are expected to adhere to rules set out in the “stability and growth pact”, which includes a limit of 3 per cent of GDP for public sector deficits. That rulebook proved “a lopsided, very post-modern construction,” says George Pagoulatos, associate professor at Athens University of Economics and Business. “The system is biased. If your deficit exceeds 3 per cent, there are procedures. But countries that have large debt levels and fast growth have not faced effective pressure to reduce that debt – and that was exactly the problem faced by Greece.” I don’t get the post-modern bit but it would apear to be true that the 3% limit in the stability and growth pact was not effective to ensure stability. A different metric does appear to be needed. People might say that Greece didn’t stick to the 3% bound anyway but Ireland did. 3% is a guideline. It has no penalty attached. It is conservative. Now is a good time to be conservative. When in a hole…. stop borrowing. It expects a sensible government to act to create a better European community by voluntary adherence. Clearly once this has been shattered then it will be adjusted. Until then, it remains. The Greeks hoped they could finesse the stats and a miracle would occur or else they would lose the election…which they did. So. That is the Greeks. Unlike the very prim honest and proper Irish…. who know that that does not work, so they use other methods. Pot meet kettle. I point out again, that it is derivatives that are creating this perception. Gambling by billionaires. At least that is what they owe. With luck they can make enough to pay off the vig each month. The tail is wagging the donkey. Or dog. Those ratings agencies that brought us the missold sub-prime tranches are telling us that sovereign countries are more in the hole than Coca Cola. Yes, I believe them. NOT! So who gains, by misdirecting attention? It is just as well that we can trust all the mainstream media too! Otherwise there might be a misperception as to the truth! Yes! Hard to believe, but some msm are lying….. Wyplosz’s note doesn’t really constitute an argument against a bail-out, rather than recognising the nice deal for investors getting both a risk premium and a safety-net. But if it’s such a nice deal then everyone would be buying Greek and the risk premium wouldn’t be there – so the risk must be real, right? In any case if you want to stop investors gaming the system then you just need an explicit commitment to bail-out – presumably the risk premium would disappear (and possibly some hedgies would be left high and dry?). Of course that leaves the issue of fiscal moral hazard but we can be as hard as we like on the feckless Greeks, but let’s not pretend that they are the whole problem (or them, us, the Spanish/Italians/Portuguese) – EMU’s institutional design problems are at least as culpable. German (and associated) support for a Bundesbank-type ECB and opposition to any fiscal federalism played their role in this crisis. RE: Munchau. How to design a bailout consistent with the no bailout rule! His bit on the need for loss of sovereignty was also revealing. What we’re talking about here is a move towards a common fiscal policy if the euro is to survive. Leaving more erudite discussion to everyone else, I got a giggle out of this paragraph For groups such as Greek farmers, who in recent weeks have blocked main roads in a campaign to protect their subsidised lifestyle, the benefits of EU membership remain clear. “I’m fairly certain that we have more tractors per capita than any other part of the world,” says Mr Manos. “This is where the EU money is going. A lot look like they have just come out of the showroom.” Comments are closed.