A Mexican Stand-Off for Greece

German Economy Minister Philipp Roesler wants an outside institution to control Greece’s budget. He claims the Greeks have proven they cannot enforce their own austerity plans. Evangelos Venizelos, the Finance Minister of Greece, released an official statement in which he said:

[O]ur partners do know that European integration is based on the institutional parity of member states and the respect of their national identity and dignity. This fundamental principle fully applies for countries that go through periods of crisis and adjustment and are in need of their partners’ assistance for the benefit of the whole of Europe and the Euro Area in particular.

In other words, no matter how bad the financial problems of Greece are, it should not be considered a special case. The region’s nations get into trouble all of the time. But Venizelos does not have much of an argument. The capital markets do not believe Greece can control its own fate both because its GDP is in retreat and because if has been slow to put adequate austerity measures in place. It cannot even settle negotiations with private creditors to reset the value of their Greek sovereign debt.

Greece’s one persuasive argument for its financial independence is implied but not spoken. If its financial fate can be placed in the hands of Germany and the more financially stable countries in the region, then so can Spain’s and Portugal’s, and perhaps Italy’s. These nations need their “national identity and dignity” preserved as well. Maybe each will support Greece’s argument out of fear of their own financial independence.

However, Greece’s disadvantage does make it unique. It cannot make the argument that its economy can recover any time in the next several years, or longer. Other economically and financially troubled nations in the region can at least argue a modestly compelling case because of the diversity of their economies and because they are not as separately in need of bailout money as Greece is. Greece’s insolvency may be only 60 days away.

Greece may voice loud objections to the idea that its budget should not be controlled by its leaders, but it does not have much leverage to keep its neighbors at arm’s length.

Douglas A. McIntyre