Stumbling block in Greece – Touchstone for Europe

Dr. Ingo Friedrich
President of the European Economic Senate
Press Statement of 18 February 2010

What was long feared is now certain. Totter candidate Greece is the greatest challenges of the EU Monetary Union. The threat of national bankruptcy Greeks is also the wrong time. After the housing crisis, followed by the banking crisis, a financial crisis has triggered an unimaginable scale, and now a national crisis is in front of the door and its impact is not yet clear.

This national crisis is not quite unexpected. Even at establishing the European Monetary Union, Greece was the weakest part in the chain of members. The consolidation of public finances was indeed often claimed and demanded compliance with the stability criteria, but moved into ever more remote. This shows once again that the control mechanisms or measures for their implementation are not yet sufficient to give credibility to the stability pact and strongly pushed to their limits. The EU must act decisively now, so that the credibility and confidence in the Euro is not endangered, which would strain the already battered financial markets have also enormous.

With approximately € 300 billion debt to foreign banks, Greece is now a hard test for the international community, and in consequence for the affected banks. Just for comparison - this is twice as much as the bankruptcy of investment bank Lehman Brothers at the time of insolvency and that was the beginning of a still ongoing banking crisis. These are dimensions that the EU Member States through national support measures carried out so far in previous crises to their economic performance, in particular introduces accountability. What should be done? In no case Greece might become insolvent - the Euro should remain strong.

The Euro countries are sitting hard on solutions to the down for the count and Greece are considering assistance in cooperation at bilateral and national levels. In principle, it must be clear, however, that before all measures, Greece itself is required to explain what specific measures are taken to solve the problem. It must not create the impression that deficit sinners are supported primarily by the community and thus the discipline to the consolidation of national budgets is undermined. Greece must implement a stringent fiscal policy and show that the efforts are not just lip service. The creative accounting of Greece, as it is called by critics, must be plausible and bear up to close scrutiny of the controlling bodies of the EU.

Only then, if credible and willingness to implement the rehabilitation measures to those set out, may be parallel relief efforts by the EU, which are safe with respect to the dimension of the crisis of state needed. This is not always easy, especially since Greece in implementing domestic policy also has a hard road ahead and the supporter States to the limits of economic capacity will be conducted.
The example of Greece will become the touchstone of whether and how the European Community is in a position to defend their stability criteria to be effective even in a crisis and crisis management to provide convincing work. This is even more important than other candidates loose, like Spain, Portugal and Ireland will follow this process closely.

Munich / Brussels, 18 February 2010