Cause and Effect in European Politics and Law

Greece has to help itself, there is no Plan B

Ralitsa Kovacheva, June 28, 2011

“There is no Plan B to avoid default … Europe can only help Greece if Greece helps itself”, EU Economic and Monetary Affairs Commissioner Olli Rehn stated, a day before the vote in the Greek Parliament on the economic programme agreed with the EU and the IMF. The official statement was also provoked by information in some media that the EU was actively developing alternative options for action in case that the Greek Parliament rejected the programme.

”The only way to avoid immediate default is for Parliament to endorse the revised economic programme. The programme includes both the medium-term fiscal strategy and the privatisation programme. They must be approved if the next tranche of financial assistance is to be released.”

In an unprecedented straight tone the commissioner stressed: “This is also about social justice. One crucial challenge is to fight tax evasion and encourage real entrepreneurship that supports honest work.”

Fiscal consolidation is a priority, but the programme also includes structural reforms to support the economic growth, Commissioner Rehn's spokesman - Amadeu Altafaj Tardio - said in response to the criticism that, while imposing austerity measures, the EU and the IMF do not leave room for maneuvers for Greece to rebuild its economy. As you know, at last week's European Council EU leaders endorsed the proposal of Commission President Jose Manuel Barroso, the European Commission and the member states to help Greece accelerate the absorption of EU structural funds, in addition to the economic programme.

Meanwhile, at a meeting in Rome, representatives of major banks and insurance companies, mainly from France and Germany, discussed the French plan to rollover part of their holdings of Greek debt. According to the proposal, financial institutions should reinvest 70 percent of their Greek bonds in the new ones with a longer maturity. The specific maturity is still under discussion, but there is even an option for 30 years, which is not welcomed by German banks.

The Financial Times points out, however, that this would be a partial solution, because commercial banks hold only about 27 percent of Greek public debt. The biggest single holder is the French BNP with 5 billion euros of exposure. Another 43% is owned by asset managers, sovereign wealth funds and foreign central banks. The European Central Bank (ECB), which refused to participate in the debt rollover, holds 14 percent, while the EU and the IMF hold the remaining 16% of the Greek debt, the newspaper notes.

The debate on the economic programme in the Greek Parliament has already started, and the vote will be in Wednesday. The outcome is still unclear, because the opposition is against the programme, the ruling party has only 5 votes more and the unity amongst the socialists themselves is fragile. Meanwhile, the country was paralysed by a 48-hour general strike against the new budget constraints.