Who pays for the Euro transfer union?

Germany is hard set against a transfer union, yet that is exactly what circumstances are forcing on the Euro area. Any debt relief to Greece makes it a transfer union by the backdoor. Money is first lent to Greece because Greece needs financial assistance to compete alongside Germany in the same currency. The debt builds up. Greece cannot repay it. So some of it is cancelled, retired, rephased. To anyone other than the German government that is a transfer union.

Germany cavils on fine definitions. If, they say, we simply prolong the loan, the debt can still be honoured. If we allow Greece to pay little or no interest on the loan for a bit, the debt is still intact. As far as markets are concerned, a debt not paying interest is worth a lot less than a debt with interest on time, and a debt repayable tomorrow is a lot more valuable than one repayable in 50 years time. You can’t get away from the fact that any diminution in interest payments and any extension of the loan has a free gift element to Greece, which is a kind of transfer union.

The IMF’s intervention into the Greek debate is at once electrifying and very unhelpful from the German point of view. I have been a longstanding critic of the IMF lending anything to a Eurozone member state. I pointed out that the IMF should only lend to countries with full powers over money, interest rates and budgets. IMF austerity measures in the public sector have to go alongside easier money and private sector led expansion to enable economic recovery to take place. This cannot happen in Euro area countries with no currency, no independent interest rates and no independent commercial banking system. The result is mass unemployment, lower incomes and often long and deep recessions. The IMF’s statement that Greece needs a debt write off is an admission of IMF failure, acknowledging that the IMF has lent to a country that cannot repay it all, and accepting that the IMF has to take a hit.

Which leads me to ask, why would the IMF want the Europeans and the IMF itself to lend more on a similar basis to last time, when last time’s loans failed to promote recovery and have ended in disaster? Is the IMF proud of its work in Greece so far, or will it now accept some responsibility and realise its clumsy interventions delayed sorting out the underlying problems?

The IMF is at last more realistic in saying that the current plans leave Greece unlikely to recover and succeed. They are saying that there needs to be transfers of cash from the rest of the zone to Greece to help. That pits them directly against Germany, delays a settlement, and means yet more misery and recession for Greece.

It is a true tragedy. Not only do the creditors and the debtor still violently disagree, but now two of the leading creditors have fallen out. Who said there was now a solution to the Greek crisis? Why did people think there was an agreement that will work?
There are only two long term answers. Either Greece leaves the Euro and establishes her own banking and currency system, or she is fully absorbed into a Euro political union and receives large transfers of cash from the richer parts of the zone in return for being told what to do.

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53 Comments

  1. Lifelogic
    Posted July 16, 2015 at 5:17 am | Permalink

    I agree fully as you say:-

    There are only two long term answers. Either Greece leaves the Euro and establishes her own banking and currency system, or she is fully absorbed into a Euro political union and receives large transfers of cash from the richer parts of the zone in return for being told what to do.

    Everyone sensible can see this but, alas not it seems the powerful within the EURO area and the deluded, group think, EU bureaucrats.

    • backofanenvelope
      Posted July 16, 2015 at 8:43 am | Permalink

      How about Greece leaving the Euro with the transition and recovery eased by large transfers from the richer parts of the zone?

  2. Peter van Leeuwen
    Posted July 16, 2015 at 6:20 am | Permalink

    The Greek parliament’s vote last night (77%) reflects that 80% of Greeks still prefer the euro above a Grexit, considered far worse. But the other 18 democracies haven’t spoken yet and a Grexit may still happen down the line.
    Today the Dutch parliament will challenge mr Dijsselbloem (Dutch finance minister) who states that the Greek debt burden is relatively low if one considers the extremely long payback periods and low interest rates (transfer union through the back door) and takes a slightly different position from the IMF on the debt sustainability. So far, the 18 democracies in the eurozone have very well stuck together, but the Finnish parliament will be a difficult hurdle to take.
    Late last year, the Greek economy was finally back on track with growth and deficit. How honest was the Syriza party to its voters promising them a future without drastic measures required?

    • JJE
      Posted July 16, 2015 at 7:13 am | Permalink

      Peter, do you still disagree with the conclusion of this article?
      Political unanimity is fine, but it cannot change reality. Perhaps they can unite and vote for a 10% reduction in the force of gravity for old folk to ease the pressure on their bodies? That will have the same chance of success as the current deal.

      • Peter van Leeuwen
        Posted July 16, 2015 at 11:01 am | Permalink

        @JJE: I’m sorry I cannot share with you a half hour interview with one of the insiders, Jeroen Dijsselbloem, as it is in Dutch, and which casts a different, more balanced light on the developments. Similarly, it won’t help you to watch the debate in the Dutch parliament, and unless you are comfortable with German and French, in their parliaments. I attach value to Dijsselbloem’s insight. I can agree to the last paragraph of this blog with a few remarks:
        1) Grexit would cause even a lot more damage, a view shared by many economists and, apparently by the majority of the Greek parliament.
        2) the transfer of cash from rich to poor will, at least for the time being, be hidden behind the very long maturities and low interest rates applied to Greece. According to Dijsselbloem, there is now less austerity in the new measures compared to previous agreements, but there are very fundamental reforms required which will be strongly opposed by traditional forces in Greece. But then, there are no easy solutions. Nobody can run an economy without being able to collect taxes, without knowing which ground belongs to whom, without not enduringly spending more than one earns, etc etc. In spite of vested interest (nepotism, “baby pensions”, protected professions, corruption, etc.) hard measures and basic reforms are necessary. If you come with a bucket full of gaping holes asking for water and promise to fix these holes, you cannot expect to just be given water when you come back for the third time and you haven’t kept your promises. That when hard conditionality comes in.

        • Margaret Brandreth-J
          Posted July 19, 2015 at 2:48 pm | Permalink

          So what are they going to do. Say no to the money? Does it matter when everyone knows that they will never be able to pay it back , but a bit of money on the side may help them rebuild when all caves in.

    • Hope
      Posted July 16, 2015 at 7:38 am | Permalink

      What a load of rubbish. The people of Greece voted no overwhelmingly, despite you trying to depict otherwise. The language used by Shultz and Junker demonstrate the economic coup was on the table and they were prepared to do everything possible to make an example and buckle the will of Greece. Disgusting behaviour etc ed. There is nothing democratic about the events.

      The current mess is not sustainable because Greece cannot pay the money back, as belatedly the IMF leaked document makes clear. Junker tears up an agreement not to use the ESFM. He has the Gaul to talk about trust! These fanatics must be stopped.

      JR, your leaders need to be held to account. No underwriting of UK taxpayers’ money. This is a test for them to keep their word, at least for a day.

      • Peter van Leeuwen
        Posted July 16, 2015 at 11:43 am | Permalink

        @Hope:
        Dijselbloem – elected politician,
        Schäuble – elected politician,
        Sester – elected politician,
        Stubb – elected official
        Sapin – elected official
        de Guindos – elected politician
        Do I need to go on?

        • Edward2
          Posted July 16, 2015 at 5:07 pm | Permalink

          I must have missed those elections who did you vote for Peter?
          I cannot remember being offered a chance to vote for any on your list.
          I’ve asked all I know locally and they all say the same.

          • Peter van Leeuwen
            Posted July 16, 2015 at 6:42 pm | Permalink

            @Edward2: Oh dear oh dear, are you part of the eurozone???
            The Dutch voted for Dijsselbloem, Germans voted for Schäuble, Spanish voters for de Guindos, etc. etc.
            Weren’t there some British who voted for Osborne? He is just not a member of one of our 18 democracies.

            I always thought that you (the UK) didn’t want to be or become a member of this club, so why complain?

          • Edward2
            Posted July 16, 2015 at 9:35 pm | Permalink

            Sorry I must have missed that general election.
            It wasn’t on the news back here in the UK
            What was the turnout among electors in Holland Peter?

    • DaveM
      Posted July 16, 2015 at 8:04 am | Permalink

      PvL: not aimed at you as such, but to use your quote:

      “The Greek parliament’s vote last night (77%) reflects that 80% of Greeks still prefer the euro above a Grexit, considered far worse.”

      80% of Greek POLITICIANS (and probably bankers) prefer the Euro. Most Greeks are more worried about how they are going to feed themselves.

      Speaking to a Greek restaurant owner the other day regarding Grexit, he said (and it is exactly the same as a line in Schindler’s List):

      “How could it possibly be worse?”

      There are riots in Greece over a currency for God’s sake. Short of civil war, how much worse can it get?

      • Peter van Leeuwen
        Posted July 16, 2015 at 11:05 am | Permalink

        @DaveM: there have been opinion polls among the Greeks in the past on their preference for the euro. I don’t know of any very recent ones.

        • petermartin2001
          Posted July 17, 2015 at 5:14 am | Permalink

          The feeling in the UK would be that an exchange rate of US$2.00 = £1.00 was preferable to US$1.56 = £1.00 which is what it actually is.

          I’m sure we’d get an 80% vote on that too.

          BUT we can’t vote on what our currency should be worth. Its worth what the forex markets say it’s worth. And, that’s good. It stops us importing more than we can afford and keeps our exports reasonably priced too.

          If the Greek currency could float, the markets would mark it down by at least 30%. That’s what the Greek economy needs to restore its competitiveness. What’s the point in piling up unpayable debt on top of unpayable debt? What’s the point of imposing so much austerity that unemployment soars and the productive capacity of the Greek economy becomes seriously degraded?

          • Hope
            Posted July 17, 2015 at 11:56 am | Permalink

            You do go on PVL. All propaganda, but is does change the facts. Who are the opposition to those in charge of the dictatorship? Who holds them to account and when do the people vote them out? There is no demos for the construct called the EU. Not elected PVL no matter how you try to spin it. An unelected dictatorship as the EC demonstrates on a nearly daily basis.

        • Lindsay McDougall
          Posted July 17, 2015 at 8:29 am | Permalink

          That’s right and there was no referendum in the UK on the Maastricht Treaty, which authorised the creation of the Euro and which should have been vetoed by John Major.

    • petermartin2001
      Posted July 16, 2015 at 8:21 am | Permalink

      There’s no drastic measures needed for Greece. There’s a need for sensible reforms coupled with expansionary budgets to get their economy moving again. The EU commission would be pushing on an open door if they engaged in rational discussion with the Syriza govt on that basis. Syriza themselves are as aware as anyone else of the need to make those reforms.

      Instead the Dutch and Germans insist on running 10% and 7% trade surpluses, which suck euros from their trading partners, then they scratch their heads in bewilderment when their euro trading partners run out of money!

      It beggars belief that your finance minister Mr Dijsselbloem can be unaware of such basic economic principles. It’s little more than arithmetic. Anyone who can count the net flow of euros from one country to another should be able to see the problem.

      • Peter van Leeuwen
        Posted July 16, 2015 at 11:06 am | Permalink

        @petermartin2001: You could of course apply for one of his two jobs, he would still be able to keep the other one.

        • petermartin2001
          Posted July 16, 2015 at 8:30 pm | Permalink

          Not if I had my way, he wouldn’t !

          I’d send him off to the University of Athens to learn some economics. Maybe Prof Varoufakis might find room in one of his remedial classes. 🙂

          • Peter van Leeuwen
            Posted July 16, 2015 at 10:43 pm | Permalink

            @petermartin2001: I’ll ask Jeroen but doubt he’s interested.
            Tonight he said that he has had it with far-left ideologists (even as a social democrat), who promise dreams without telling where they’ll find the money for it.
            Dijsselbloem (stupid as you may think he is) turned the Dutch economy from recession to growth, Varouvakis caused untold extra misery in Greece. From primary surplus to needing €7 billion to needing some €80 billion (and counting). What great success he’s been for Greece!

          • petermartin2001
            Posted July 18, 2015 at 2:26 am | Permalink

            “Dijsselbloem (stupid as you may think he is) turned the Dutch economy from recession to growth”

            Yes, he’s exported Dutch unemployment to Greece and Spain. So, maybe he’s not so stupid after all?

            The point is though, that on a world wide scale, exports from one country have to match imports to another country. Penny for penny.

            Euro-economics doesn’t recognise that this type of ‘beggar-my -neighbour’ economic approach can only solve one problem at the expense of creating another.

    • oldtimer
      Posted July 16, 2015 at 8:23 am | Permalink

      The response of the EZ parliaments that will vote on this matter will be revealing. None can claim ignorance of the shambles on which they will be asked to pronounce – it is there for all to see, especially the political class. If they vote it through, I am curious to know on what grounds they deem the terms, the prevailing political turmoil in Greece itself and the prospect of a bottomless money pit as a sound foundation for the continuing financial support that will required from their taxpayers.

  3. Ian wragg
    Posted July 16, 2015 at 6:30 am | Permalink

    It’s time the IMF had someone different to a French leader. It has become lender of last or first resort for the Euro zone.
    What’s the betting that we contribute to the latest financially incontinent gift to Greece.
    Any news yet John as to what Dave is negotiating or does it come under the official secrets act

  4. Mark B
    Posted July 16, 2015 at 6:35 am | Permalink

    Good morning.

    As a member of the IMF and a financial contributor, exactly how much does the UK Taxpayer lose if the loans to Greece are wiped off ?

    Also, I reas elsewhere that the UK Taxpayer may be required by the EU to contribute to any further bailout of Greece. Is this true, and is so, will our kind host and this Parliament (not Government) support the transfer of monies too the EU and Greece ?

    Sorry, slightly off topic.

    I also read that the UK has been fined for misaccounting by the EU. Will those responsible for this be held to account ?

    Many thanks,

    A long suffering UK Taxpayer

    • Brian Tomkinson
      Posted July 16, 2015 at 7:58 am | Permalink

      Mark,
      It’s a bit rich for the EU, which hasn’t had its accounts officially signed off for 19 years, to impose a fine on the UK for misaccounting!!

      • majorfrustration
        Posted July 16, 2015 at 9:34 am | Permalink

        Lets hope the Daily Mail picks this up – can’t see the politicos doing much about it with any great reassuring speed

  5. JoeSoap
    Posted July 16, 2015 at 6:36 am | Permalink

    Yes, these are the facts.
    However, you are a politician and we are the UK. The UK is not in the Euro-infact we stated unequivocally that we wanted nothing to do with it. We are however being dragged into this game, and your cardinal role here as a politician should be to turn these facts into a thesis which says we shouldn’t be lending to failed parts of this so-called transfer union. It is no good implicitly criticising the IMF without also explicitly criticising your own government for being complicit in the financial scheme which is propping up the edifice.

    I really do think if UKIP thoughts and actions had more influence in this matter we would be farther from the exclusion zone of this explosive mixture, and thereby in a better position to help when it all falls to bits. Your party in government is becoming too embroiled in the EU and its works.

  6. Stuart B(eaker)
    Posted July 16, 2015 at 6:40 am | Permalink

    I seem to remember some time ago suggesting that we, the UK, should extend bilateral funding arrangements to Greece. This would serve us in asserting our independent capability of dealing nation to nation, without reference to the ‘bureaucratic suprematists’ of the EU. It would also appeal directly to the Greek people, regardless of the political colour of their government, and have a long-term relationship benefit to the UK.

    I think it is now time to seriously consider bilateralism in this context, as either or both ‘trade’ and ‘aid’. As I said, I believe we could extract considerable long-term benefit for the UK. If our assistance outwith the EU transfer mechanisms encouraged Grexit, all the better.

    • JJE
      Posted July 16, 2015 at 7:23 am | Permalink

      Would you really expect ever to see that money back, or receive any thanks for it?
      Greece in my view will only face reality when it has to as a fully independent state standing on its own two feet. Though I accept it may need some bridging humanitarian aid by the time the Eurozone has finished with its “assistance”.

      • Gary
        Posted July 16, 2015 at 10:44 am | Permalink

        if Greece were a fully independent state they would do what all fully independent states eventually end up doing: printing themselves into hyperinflation misery.

        you have a short memory. The UK was in the arms of the IMF in the mid 70’s. It was only north sea oil that gave us a reprieve.

        • Edward2
          Posted July 16, 2015 at 5:10 pm | Permalink

          A floating currency like all independent democratic nations would give Greece a chance of success Gary.
          I remember you complaining about UK “austerity” but Greece has real austerity imposed on it by the EU with no chance of any escape.

    • Stuart B(eaker)
      Posted July 16, 2015 at 8:33 am | Permalink

      Apologies – of course, Grexit would be a precondition of bilaterality, otherwise we would simply be channeling funds back to the existing creditors, rather than assisting Greece in any way to reconstruct its economy.

  7. David Murfin
    Posted July 16, 2015 at 6:47 am | Permalink

    This failure to accept reality is the chief reason why UK should leave the EU.

    • Iain Moore
      Posted July 16, 2015 at 9:48 am | Permalink

      Not only can it not accept reality, even if it did, it couldn’t do anything about it. The EU is a totally sclerotic organisation that cannot change, it is locked into treaties negotiated decades ago that are beyond its ability to change.

      When we have a flexible constitution that is able to adapt and change that has served us well, how mad is it to have bound ourselves to an organisation that has a terminal case of institutional inertia?

  8. agricola
    Posted July 16, 2015 at 7:20 am | Permalink

    Your last paragraph encapsulates the reality. It would seem that Germany cannot accept the financial responsibility of being the prime income source in a currency union. The Greeks cannot accept the , to them, draconian responsibilities of belonging to a currency union, so to me there is only one solution. Greece must leave the Euro and conduct their economy as they see fit. If they then feel they need the financial support of other countries or the IMF they must be prepared to accommodate the lenders requirements, or become a pariah.

    It is a salutary lesson in the folly of politics trying to buck financial reality. It should make the other southern EU states consider the wisdom of staying in the Euro. Finally were your leader a rational person driven by evidence, there would be an end to the nonsense of implausible re-negotiation, a presentation of the facts, a debate, a referendum and an exit. Perhaps someone can answer this, why not, tedious question.

  9. bluedog
    Posted July 16, 2015 at 7:26 am | Permalink

    For years the IMF has been a sheltered workshop for senior French technocrats and superannuated politicians. Whilst not in anyway suggesting M/s Lagarde has acted with anything other than integrity, would it not be preferable if the IMF executive were not staffed by nationals of the Eurozone in the current circumstances? In corporate governance, a director with a potential conflict of interest is usually required to stand aside on a sensitive matter. Perhaps the same rule should apply to the IMF.

  10. formula57
    Posted July 16, 2015 at 7:30 am | Permalink

    After yesterday’s “slap in the face” it seems the UK and other non-EZ countries in the EU are expected to join those who pay.

  11. M Davis
    Posted July 16, 2015 at 7:35 am | Permalink

    I can only think that if David Cameron still wants to be in the EU, after all these evil shenanigans by the EU, it is purely to receive a Commission post after his stint of PM.

  12. Brian Tomkinson
    Posted July 16, 2015 at 8:06 am | Permalink

    Cameron was right during PMQs yesterday when he said that the UK shouldn’t be required to contribute via the EU to this Greek crisis but be prepared to help with aid if the Greeks left the eurozone.
    During the afternoon we heard that this position had already been jettisoned and that the UK taxpayers’ money would be used with some ‘safeguards’. Ironically he also said we weren’t in the euro and wouldn’t join. What credibility has such a statement? About as much as the one that melted away yesterday.
    Sign of things to come I fear with both the renegotiations and, if he gets his way and convinces people to vote to stay in this dictatorial regime, further integration into a country called Europe.

  13. Chris S
    Posted July 16, 2015 at 8:55 am | Permalink

    For us the whole Euro situation is like being a parent watching his or her child making a whole series of bad decisions that gets the child into ever deeper financial trouble while finding it difficult to influence or guide the offspring out of the problem.

    But in this case, Cameron and Osborne are not acting like responsible parents, they are both sitting on the sidelines urging the Eurozone to continue its current downward spiral. If they were honest they would be telling everyone who will listen publically that debt relief is essential for Greece and the only alternative is not more loans but exit from the Eurozone.

    Almost nobody emerges from this scandalous shambles with any credit at all, especially Frau Merkel who will certainly go down in history as the ultimate consensus politician, flawed to the extent that she can’t make any kind of difficult decision because she is incapable or unwilling to go out and sell it to the Bundestag and her voters.

    The possible exception is her Finance Minister, Wolfgang Schäuble, who has been proposing Grexit for some time but is being shouted down from all sides.

  14. Peter Stroud
    Posted July 16, 2015 at 8:55 am | Permalink

    Clearly, the Euro can only work with full fiscal union. This has been stressed by many experts for years: but how long will it take to implement the change? And how many other monetary problems will arise in the man time? What a confounded mess.

    • ChrisS
      Posted July 16, 2015 at 1:20 pm | Permalink

      “Clearly, the Euro can only work with full fiscal union”.

      Peter, you are right but Merkel and Co are now finding out the hard way that they cannot really resolve the Greek problem because there is absolutely no appetite for full fiscal union amongst their voters.

      Hardly surprising when one considers the implications for democracy !

      The absolute necessity for Fiscal Union has been know since the birth of the Euro but was hidden from voters because the politicians knew that they couldn’t deliver it. They hoped that as the project went on, the electorate would fall into line under the constant harping on about “Ever Closer Union.”

      This is the bind Merkel and Co find themselves in. The way they have treated Greece has angered reasonable-minded people all across Europe, even those on the left in the UK.

      It’s now clear to the keenest Europhile that nobody is going to be allowed to stand in the way of Frau Merkel and her cohorts. As a result people will be even more unlikely to accept control from Brussels ( and really from Berlin ) and will want to vote with their feet. If the other Eurozone members they can keep Greece subjugated and quiet, attention will turn to Spain in the Autumn.

      When Podemos comes to power, the Brussels Mafia are going to find it much more difficult to bully such a large country and Pablo Iglesias Turrión will have a score he will want to settle over the treatment of his allies in Greece.

      I forecast a lively winter !

  15. Leslie Singleton
    Posted July 16, 2015 at 8:57 am | Permalink

    We have gone from a position (not so long ago) when Merkel was saying that it was preposterous even to consider the possibility that the serried and closed ranks of the EU might need help from the IMF, indeed that the IMF wouldn’t be allowed to poke its nose in even if it wanted to, to Germany (not sure who, but just the other night) saying that they cannot possibly lend if the IMF doesn’t. Is it the IMF’s (“technical”) know-how (??) that is now needed or it’s (partly our) money? One gathers that the USA (more seats on the IMF Board) is worried and applying pressure though it escapes me why they should be in favour of continuing this fiasco. The boil needs lancing.

    • Leslie Singleton
      Posted July 16, 2015 at 8:59 am | Permalink

      Postscript–Sorry, its not it’s

  16. Monty
    Posted July 16, 2015 at 9:20 am | Permalink

    If Greece was allowed to become the benefits queen of the EU, it wouldn’t stop there would it. There are a number of other Eurozone countries struggling under severe austerity who would demand the same accomodation. Before long, the zone would have turned into an international welfare state.
    Of course, there would have to be parity of taxes and benefits across the zone, and that would still give rise to as much rancour and strife as we see in Greece today.

  17. CHRISTOPHER HOUSTON
    Posted July 16, 2015 at 9:22 am | Permalink

    Monetary Union, Fiscal Union, Transfer Union, Trades Union, Union of Soviet Socialist Republics, European Union. What’s in a name?

    The transfer of our money to Greece occurs on the personal level every time we holiday there and pay in Euro what actually are vastly inflated prices. Without the Euro, without the EU, we would pay what one would expect to pay for goods and services in a much less developed country than our own. A fair price, in fact.
    We pay an inflated price in Greece and the excess, our money, British money, does not advantage Greeks nor the Greek economy but is transferred to primarily the Bundesbank and the IMF as loan and more so interest payments.

    So the IMF and Germany are griping about recircling/transferring their ill-gotten gains from ourselves and the Greek people. Tough bockwurst.

  18. majorfrustration
    Posted July 16, 2015 at 9:47 am | Permalink

    I sense that the fat lady has yet to sign. Lets hope the indemnity – being negotiated?? – to cover our bailout contribution via the EFSM proves better than the agreement DC obtained in 2013.
    But whats to negotiate – surely an indemnity is essentially ” if A does not pay you back then then I will” simple. Given we are no longer able to trust the EZ lets just offset any failure to repay our contribution against that which we make to the EZ.
    We should also prepare ourselves for another call for capital from the IMF. But if this were to be prompted by the Greek/EZ situation then lets hope our political leaders have the fibre to resist. Given that the USA have not funded their 2013 pledge there is no reason why we should make any further contributions to the IMF leaving euro losses to be covered by the EZ.

    • Denis Cooper
      Posted July 16, 2015 at 2:34 pm | Permalink

      Well, I could certainly give you an indemnity against losses on a loan you are making to A, saying “If A does not pay you back then then I will”.

      But when we move from individuals to EU institutions and member states, that seems to be a different matter under Article 125 TFEU in the EU treaties.

      Then: “The Union shall not be liable for or assume the commitments of central governments … ” and “A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State”; so is it not forbidden for either the ECB, or the government of another EU member state, to say to the UK government “If the government of Greece does not pay you back then I will”? Which seems to what is being proposed.

      Reply The guarantee or collateral would be better from other member states – but why do they need to use the EFSM anyway?

  19. Rods
    Posted July 16, 2015 at 11:01 am | Permalink

    There is a third answer to your last paragraph that is the most likely long term outcome and that is the failure of the Euro. If those in control of the currency make such a mess of a small economy like Greece, how are they going to cope with the much bigger economies and problems of Italy, Spain and France?

    All three countries are using the Euro to kick the massive structural reform can down the road, so things will have to get much, much worse before reforms are carried out through necessity. Greece has largely used the EU money, to put off many essential reforms where they are considered too difficult because of the many vested interests and powerful lobbies. The most likely outcome from the latest bailout is more of the same, so they will be back to tap-up EU taxpayers for more money in three years time.

    The next IMF leader needs to be outside of Europe, where IMO the institution is now an extension of French interests and politics and where France is a key member of the EU and the Euro this means those as well. They need to get back to their historic role of lending money to countries with balance of payment problems in return for structural reforms to fix the problems. They should not be in the business of taking money from many countries around the world to prop-up politically inspired artificial currency unions that are going to fail.

  20. Nick
    Posted July 16, 2015 at 11:02 am | Permalink

    John
    David Cameron’s renegotiations are to be in the form of “binding agreements”, not treaty change.
    Will this mean that they will be honoured by the EU in the same manner as the “binding agreement”, not to make the UK pay £850,000,000 for the Euro/Greece bailout?
    Or is this further proof that the whole renegotiation charade is designed to pull the wool over the eyes of the British voters?
    John, are you going to point this out publically?

    Reply I have called for Treaty change and given an interview re this matter showing why we need treaty change

  21. Peter van Leeuwen
    Posted July 16, 2015 at 8:28 pm | Permalink

    Very good debate in Dutch parliament. Still huge lack of trust in Greek willingness to implement what they will agree among a large majority of the parties. The Dutch parliament won’t vote against at this stage though, and the Dutch government doesn’t need the explicit agreement of the parliament in this case. I see the discussions move to how (not if) debt relief will be given to Greece in the coming weeks and months.

    • Edward2
      Posted July 16, 2015 at 9:42 pm | Permalink

      You need to realise Greece are not going to be able to repay within decades.
      And after further austerity measures are imposed by the Germans the Greeks have even less chance of paying you back.
      You need to accept you are in a currency union and you will get much poorer in Holland as the poorer nations get bailed out.
      Just as in the USA rich States subsidise poorer States.
      Its all part of the procedure of creating a European superstate of equals.

  22. Lindsay McDougall
    Posted July 17, 2015 at 12:45 am | Permalink

    I think that the IMF wants to be the preferential creditor and that a new loan to Greece from the Euro zone countries will be used to pay back the IMF. The IMF will not make any new loans to Greece. Madame Lagarde has seen the error of her ways and wants out.

    Germany wants Greece to do its level best to implement reforms before showing any leniency. The problem is that in the mix are new and increased taxes which may well prove to be counter productive. It’s best to get the Greek economy growing, even if only at 1%, before tightening the screw.

    The IMF thinks that Greek state debt will soon reach 200% of GDP. There aren’t too many precedents in the developed world. UK state debt hit 240% of GDP in the late 1940s but we had understanding creditors (the USA and our own people) and it took over 30 years to pay back. Japan’s state debt is over 200% of GDP but that is mainly borrowed internally.

    If there is no formal cancellation of debt, Greece will need reduced interest and a 30 year payback period. I wonder if they know that.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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