Who Gets to Settle the Greek Problem?

Evangelos Venizelos, the rotund finance minister of Greece, has gone to Brussels to parlay with eurozone officials about how his country can break the deadlock that threatens to cause a default next month. Any arrangement must be approved by officials from the European Union, European Central Bank and International Monetary Fund. The final day by which an accord has to be reached is February 15, although it is not clear whether that can be extended. In the meantime, no one knows whether one of the parties at these meetings will try to dictate a solution with the expectation that all other parties will follow. That may be the only way that the rescue can be affected.

Venizelos, the prime minister and the other major political parties in Greece apparently have agreed on austerity measures they believe will satisfy those who would provide the southern European nation new loans. Greek officials have gone so far as to say they will cut the country’s minimum wage by 20%. They have not agreed whether some public pensions benefits can be lowered. That single issue could block a resolution.

The ECB has said that a direct bailout of Greece is not its problem, nor can it be. The bank’s responsibility is to the region’s banks. The ECB can make loans to these financial firms with the hope that they will buy sovereign paper. However, the banks are under no obligation to do so. The IMF would like to take a larger role in the bailout process, or so its leader Christine Largarde says. But the agency does not have the money for the serial bailouts of nations that may need money nearly as badly as Greece does. And IMF members may object to the risk to their money if a Greek bailout fails.

The lack of any ability to act by the IMF and ECB leaves the EU as the decision maker of last resort. Because of the financial strength of France and Germany, the final resolution, or lack of one, belongs to them. Bloomberg reports that polls taken in France show that President Nicolas Sarkozy has the lowest popularity ratings ahead of elections of any leader since the end of World War II. France is out of the running as the leader of a bailout because Sarkozy is.

That leaves Germany and Angela Merkel. Polls taken in her country indicate that most voters want Greece out of the eurozone. They do not want their tax dollars to go to a nation where the citizens cannot control their spending and the government cannot collect taxes. So, Merkel will have to put her own political future at risk if Germany is to step forward in Brussels with a solution, and the money, to solve the Greek crisis.

It always did come down to Germany, because Germany controls the purse strings of the region. The unsolved mystery is whether the richest country in Europe will take the long risk of holding the region together. But that is nothing new.

Douglas A. McIntyre