Bailout for Greece
Did We Read the Fine Print of the Lisbon Treaty?
Following the successful ratification of the Lisbon Treaty, the European Union is endeavouring to present itself to the outside world as both a strong economic union but also a force on the global stage. The Greece debt crisis, however, has exposed both divisions within Europe and the expansive range of powers now conferred on European institutions to respond to such situations. To many, a European safety net is seen as a blessing for struggling Greece, yet to others a worrying trend has emerged as the EU swoops in to impose a harsh budgetary regime on the Greek government.
In February 2010 Greece’s financial problems, caused by a massive budget deficit, surged to the fore causing a meltdown on the Greek stock exchange and the setting of massive short positions against the euro by speculators. As a result the European Council set a series of highly ambitious targets for the Greek government in order for them to meet their loan repayment schedule. Unbeknownst to many, hidden deep inside the Lisbon Treaty were the tools needed by the EU to step in and take control of Greek finances, namely tax and spending policies. Crucially, these targets were not requested of Greece but expected of them.
Unforeseen and unprecedented, the current crisis is the first test of this new legislation. Should we be concerned at the evident potential for Europe to use such laws to ever expand into sovereign territory, specifically the authority of a national government to manage its own finances? Just what can we tolerate in defence of the euro?
‘Natural Disasters or Exceptional Occurrences’
A tremendously complex piece of legislation, and the root of much controversy including two referenda in Ireland, the Lisbon Treaty aimed to reform the running of the European Union with an expanding number of Member States in mind. It also extended the number of areas within which the EU regulates under the subsidiary principle, and finally developed a framework within which the EU may act as a player in the international arena. It is a hugely important document and was debated in the press for months prior to ratification; did we read the fine print?
Hidden deep inside the
Lisbon Treaty were the
tools needed by the EU
to step in and take control
of Greek finances
‘Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.’
Article 122.2, Lisbon Treaty
Can we consider Greece’s woes to be the result of a natural disaster or exceptional circumstances beyond their control? Many would argue not; Greece dug itself into this situation and now the EU is planning to dig it out. Vague as it is, the article suggests that, without the consultation of either the directly elected European Parliament or the European Central Bank, the European Council may step in and bail out Greece from some sort of communal pot. These provisions allow the Council to bypass a co-decision process with the Parliament and avoid the delicate task of asking Member States individually to contribute to any bailout. Crucially, such a vote would be based on a qualified majority and hence even states outvoted would be liable to contribute to any bail out from this pot. Article 122 may be contrasted however with the so-called ‘no-bailout’ clause, Article 125, which explicitly prohibits member states from taking on the financial ‘commitments’ of a national government. Ambiguities abound and even the institutions concerned seem confused...
“No definition of ‘exceptional occurrences beyond the control of a Member State’ exists and the Council has never discussed it.”
European Council, May 2009
It became clear early on that Greece would need access to serious funds and fast in order to stave off a loan default of epic proportions. It wasn’t clear however that the money needed to come from within the European Union, whether it be in the form of ‘Union assistance’ or a bilateral arrangement. Europe doesn’t need outside help was the line from Jean-Claude Trichet, President of the European Central Bank, as he knocked all suggestions that the International Monetary Fund (IMF) would step in and bail out the stricken Greeks.
“I do not trust that it would be appropriate to have the introduction of the IMF as a supplier of help through standby or through any kind of such help.”
Jean-Claude Trichet, President of the European Central Bank
Out of our Hands
Determined to maintain control of internal financial matters, the Greek crisis has shown the European Union under the Lisbon Treaty to be anxious to spread its wings. Indeed, the current EU President has expressed support for some form of supranational economic governance of Europe.
Under the Lisbon Treaty
the European Council has been
bestowed with the power to
remotely govern the finances of
one of it’s Member States
“Recent developments in the euro area highlight the urgent need to strengthen our economic governance.”
President of the European Council, Herman Van Rompuy
Article 126 of the Lisbon Treaty highlights the procedures under which the European Council can, in essence, seize control of a ‘troubled’ Member State’s finances. In cases of ‘excessive deficit’, the Council shall address ‘recommendations’ to the Member State in question ‘with a view to bringing th(e) situation to an end within a given period’. If these recommendations are not heeded, the Council may make such recommendations public. If a Member State persists in ignoring these recommendations, the Council may ‘give notice to the Member State to take, within a specified time limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation.’ These measures are undertaken ‘without taking into account the vote of the member of the Council representing the Member State concerned.’
It appears to be clear: under the Lisbon Treaty the European Council has been bestowed with the power to remotely govern the finances of one of it’s Member States without the input of that state itself, the European Parliament or even the European Central Bank. Unprecedented, and perhaps unforeseen, the Greek dilemma has undoubtedly shown who’s boss in Europe ... the only question is: who is next?
In Defence of the Euro
Many would argue that such a bailout had to occur, that Europe should go to any length to protect the euro. A reluctance to allow external parties, such as the IMF, to come to the rescue of Greece has shown a certain ruthless determination on the part of the European Union to resolve financial problems internally and do whatever it takes to protect the euro. In this case, however, it has become apparent that the funds and security required by Greece necessitated intervention from the IMF and a joint IMF-EU rescue is currently on the cards. In a rare show of disunity, reluctant to commit cash to an assistance plan and facing angry voters, Germany’s Angela Merkel challenged an EU-funded bailout on the grounds that Greece’s problems were ‘home-grown’ and called for countries that repeatedly ignored EU rules to be expelled from the Eurozone. The future of Greece remains uncertain.
There is, however, a much larger question at stake here. This episode has highlighted the powers bestowed on the European Council in particular to step in and take control of a sovereign nation’s finances, irrespective of their support for such an intervention. The method of ‘recommendations’ to problematic Member States, via a majority vote that may disregard the vote of the Member State in question, has drawn attention to the wide-ranging new powers invested in the Council by the Lisbon Treaty. Conceived as last resort perhaps, but at what cost to state sovereignty?
Just what else is hidden in the fine print? Is this perhaps an ominous precedent of things to come?
Rhodri Oliver is a physics student at Imperial College who, amongst other things, enjoys debating and learning to fly.