The united city-states of Greece is in trouble. And their hyperborean cousins to the north don’t want to help them. Germania has just asked Athenia to mind its finances. The Economic and Monetary Union (EMU) must be commended for imposing fiscal discipline on modern European civilization, the Platonic civilizational evidence about Europe’s Germanic antiquity being of uncertain nature.
Greece has violated the Maastricht fiscal criterion for the ratio of deficit to GDP and national debt to GDP. Greece is being asked to bring its annual deficit to GDP ratio back to under the 3% threshold from more than 4 times that limit and to bring its exploding national debt to GDP ratio back to under the Maastricht 60% limit from more than double that. Finally, the European Central Bank (ECB) in Frankfurt, the successor of the post-Nazi Bundesbank, ever hawkish about inflation, thought it was time to crack down. Still, there is something troubling about asking Greece to bring its debt into order for more than one reason.
For the EMU countries, who are already members, violating their own rules seems to be acceptable to the egregious extent that Greece has done, even as several eastern European countries have been waiting in line patiently to get into the EMU through the ups and downs of the European business cycle. Their de facto euroization has not convinced the European Commission (EC) in Brussels yet of their admittance into the EMU.
The sustainability of the EMU, a common currency area, is under stress. And this is a test for the EU to see if it can deal with the crisis, the first the euro is facing since its inception in 2001 as a common currency. In the United States, a single country, states with many electoral votes have the power to direct tax receipts at the federal level if their economies are not doing well. The EMU, however, as yet does not have that ability. Brussels has a highly inadequate supra-national fiscal structure which does not permit the EU to contribute to a common European fiscal pot and then to redistribute to countries that are in need of fiscal intervention without having to raise their debt level above the Maastricht limits. Without such supra-national fiscal policy the union could be under risk of dissolution.
ECB’s admonition of Greece to restructure its government expenditures is as necessary as it is for countries within the Maastricht limits in the EMU or in the EU-at-large to find ways to come to the aid of those that are faltering. At the same time it is important for countries which could falter to take corrective action in the run up to the potential violation of the treaties governing the union so as not to free ride on the fiscal welfare provisions of the union, should they be set up.
If the EU cannot figure out a way to save Greece, the quiet civil war could go on in Europe.
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