Greece - it is only the first test for the euro

Otmar Issing, one of the founding fathers of the euro, very correctly identified the principles that underpin the single currency. The euro was conceived and created as an instrument of monetary, not political. The member countries of the Union established a single central bank, but not yet submitted this general authority the right to tax its citizens. This principle is enshrined in the Maastricht Treaty, and since then actively interpreted in all ways the German constitutional court. The euro was unique and special creations, and now its viability is severely tested for strength. He has a serious and obvious flaw. Full-fledged currency requires not only the central bank, but the Treasury (Treasury Department). Such treasury can not deal with the constant tax citizens, however, to use this feature if necessary, for example, during the crisis. When the financial system is on the verge of collapse, the central bank can ensure its liquidity, but only the Treasury can solve the problem of solvency. This well-known fact, it is very unlikely that it did not know about those who conceived the euro and participated in its creation. Issing admits that he was among those who see education as a monetary union without political branches of government attempt to put the cart before the horse.

So, put the cart before the horse - was thus created the European Union. There were limited, but politically it is achievable goals and timetables, but all knew that they would not be enough, will require new steps and new steps. For several reasons, the process of gradually stopped. Development of the EU is now frozen at the current stage. The same applies to the euro. 2008 financial crisis, forcing members of the Union to save their banking systems, he opened our eyes to the defects and flaws in its design. The apotheosis was the debt crisis in Greece. If members of the European Union can not get out of their lethargy and continue the process of development, the euro is doomed. Initially, when creating a single currency, it was announced that members of the Union will comply with the restrictions set by the Maastricht Treaty. However, the previous government of Greece committed a serious violation of these restrictions. The government of George Papandreou, elected last October, with the obligation to restore order, reported that the budget deficit in 2009 amounted to 12.7% than that plunged into a deep shock not only markets, but European authorities.


European authorities contented plan for gradually reducing the deficit, with the first step of reduction of 4%. However, the market is not enough. Risk premium on the Greek government bonds are still kept in 3%, which Greece denies most of the advantages of participation in the euro area. If the situation does not change, Greece simply can not pull ourselves out of debt swamp, no matter what she did. Further budget cuts will only depress economic activity is stronger, leading to a reduction in tax revenues and the decline in the ratio of debt to GDP. Thus, the risk premium will not return to the onetime levels without outside assistance. The situation is worsening developments in the market default swaps on loans: now outweighs the camp of those who bets on a decline. When buying a CDS, the risk is automatically reduced if they do not work. This action can be considered the opposite short-selling shares, where, in case of error, the risk automatically increases. Speculation in the CDS market could trigger a further increase in risk premia.

The ministers of the euro area at its last meeting, recognized the complexity of the situation and pledged to "maintain the financial stability of the euro area as a whole. Unfortunately, they still have not found the mechanisms to implement their obligations, because the current institutional arrangements are not suitable for this purpose - although Article 123 of the Treaty of Lisbon and provides the necessary legal framework. Joint issue Eurobonds to refinance the secured, say, 75% of debt to be repaid in the event of Greece promised performance, would be the best solution. Athens remains to string up and finance the rest. Such measures would help to significantly reduce the cost of financing and, in its essence. correspond to the distribution of IMF credit tranches. But now, from a political standpoint, this is impossible, since Germany was categorically opposed to serve as a feeding trough for their hapless neighbors. Thus, no sane alternatives remains.

Papandreou Government intends to correct the mistakes of the past, it is broad public support. When at the helm were their predecessors, the country now and then roll flat waves of mass protests, but now people seem happy to take the path of hardship if it would lead him to get rid of the budget problems - and they are many. Thus, Greece would be enough temporary assistance. However, there is still Spain, Italy, Portugal and Ireland. However, too many of them to be able to do this kind of action. Salvation Greece still does not guarantee the salvation of the euro. Even if he manages to overcome the current crisis, what if you break out a new one? One thing is clear: we need a strict monitoring and control over the implementation of institutional arrangements in the case of assistance under certain conditions. It is also desirable to create a reliable and well-organized Eurobond market. The question is, can Europe build their political will in a fist for these steps.


George Soros


The Financial Times