The EU Statement on Greece

Here is the text issued by the EU leaders:

We reaffirm that all euro area members must conduct sound national policies in line with the agreed rules and should be aware of their shared responsibility for the economic and financial stability in  the area.

We fully support the efforts of the Greek government and welcome the additional measures
announced on 3 March which are sufficient to safeguard the 2010 budgetary targets. We recognize  that the Greek authorities have taken ambitious and decisive action which should allow Greece to regain the full confidence of the markets.

The consolidation measures taken by Greece are an important contribution to enhancing fiscal
sustainability and market confidence. The Greek government has not requested any financial
support. Consequently, today no decision has been taken to activate the below mentioned
mechanism.

In this context, Euro area member states reaffirm their willingness to take determined and
coordinated action, if needed, to safeguard financial stability in the euro area as a whole, as decided the 11th of February.

As part of a package involving substantial International Monetary Fund financing and a majority of European financing, Euro area member states, are ready to contribute to coordinated bilateral loans.

This mechanism, complementing International Monetary Fund financing, has to be considered
ultima ratio, meaning in particular that market financing is insufficient. Any disbursement on the
bilateral loans would be decided by the euro area member states by unanimity subject to strong
conditionality and based on an assessment by the European Commission and the European Central Bank. We expect Euro-Member states to participate on the basis of their respective ECB capital key.

The objective of this mechanism will not be to provide financing at average euro area interest rates, but to set incentives to return to market financing as soon as possible by risk adequate pricing.  Interest rates will be non-concessional, i.e. not contain any subsidy element. Decisions under this mechanism will be taken in full consistency with the Treaty framework and national laws.

European Fiscal Assistance: Only with Conditions

Axel Weber made an interesting speech last night. He recognises that European fiscal assistance to a member state may be possible, but only under extreme conditions. Moreover, in order to comply with the ‘no bailout’ clause, any loan would have to be conditional (he does not specify the list of conditions).

Key part of the speech:

“It should be emphasised that the “no-bail-out” rule, as stipulated in the EC Treaty, is an indispensable instrument for preventing moral hazard behaviour by the member states. With that in mind, issuing blank cheques would definitely be the wrong course of action.

Yet, EMU is our common destiny. If any kind of help for a member state were necessary in the improbable case of an extreme emergency, the clear conditionality of such support would be essential in order to comply with the Treaty.”

VOX: Ireland in Crisis

Written by Patrick Honohan and Philip Lane, there is a new essay posted on the VOX website that seeks to explain the current state of the Irish economy and recommends a shift in fiscal strategy: you can read it here.

Update:  A shorter version of the article appears in the March 1 edition of the Sunday Business Post.

Update:  The article is also cross-posted at Roubini Global Monitor.