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No money, but plenty of fudge

February 13, 2010

I honestly expected that they would come up with something a little more solid than this:

Following talks between the Greek prime minister, George Papandreou, Merkel, President Nicolas Sarkozy of France, and Jose Manuel Barroso and Herman Van Rompuy, the European commission and European council presidents, the leaders issued a statement aimed at restoring calm and voicing political support for Papandreou’s programme of swingeing budget cuts and structural reforms.

The statement said the 16 EU countries who use the single currency, including Greece, “will take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole.” That was seen as a strong political signal to speculators that the big euro economies such as Germany and France would act persuasively to restore confidence in the currency.

But there were no promises of funds for Greece and the statement emphasised that “the Greek government has not requested any financial support”.

The crisis has exposed the weakness at the heart of the Euro project: monetary union without fiscal and political union lacks credibility. Some in the European institutions want to exploit the current chaos to push Europe towards the latter two (see monetary affairs commissioner Oli Rehn’s comments on “surveillance”) but if the major powers can’t get the Euro through this difficulty in good shape, that’s not a likely prospect.

A bailout would be expensive. The more fervent believers in the free market’s virtues worry, too, about the bad precedent it could set for other afflicted states. But this verbal fudge carries its own risks: presumably, the expectation is that “oversight” from assorted international bodies would be enough to force the Greek government to get its house in order to the satisfaction of the markets.

That will mean cracking down and breaking the protest movement domestically. At present, Papendreou’s new administration appears to have persuaded a fair chunk of its population that, to use David Cameron’s charmless phrase, the cupboard is bare. On the other side, the strikes, blockades, and demonstrations continue. The battle lines could not be drawn more sharply.

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