Finance ministers of the common eurozone currency have turned down an appeal from Greece for details of a safety net in the event that Athens defaults on its massive debt.
Greek Finance Minister George Papaconstantinou said publication of an explicit rescue plan would calm money markets and prevent more speculative attacks against the euro, which has fallen to its lowest level in nine months against the dollar.
He said the 16 countries that use the euro need to work out a "mechanism" by which member states threatened by default can be helped. Papaconstantinou was speaking in Brussels before a meeting late on February 15 of eurozone finance ministers.
But the ministers apparently did not discuss a mechanism. Instead they repeated a vague formula that they would take "determined and coordinated action, if needed, to safeguard stability in the euro area". They gave no clue as to what concrete steps they would take.
Meanwhile, they gave Athens until mid-March to show that its own austerity plan is working.
Luxembourg's Jean Claude Juncker, who chairs the group of ministers, said they "are expecting Greece to prove that it is taking very seriously the commitments it has submitted itself to and that therefore the first measures will be taken to ensure the budget deficit can be reduced by 4 [percentage points]."
Juncker added that he personally believes Greece "will do all that is necessary" and that "the markets are completely wrong to continue to attack Greece since Greece has engaged itself to take all the measures necessary."
If things are not running to plan, Juncker signaled the eurozone ministers would step in to impose even harsher austerity measures to bring down Greece' massive debts totaling several hundred billion euros.
This would effectively abridge Greece's sovereignty in this area, by means of qualified majority voting.
The European Union commissioner for economy and monetary affairs, Olli Rehn, said on February 15 at a news conference in Brussels that Greece's deficit crisis has taught the eurozone an important lesson, which is "that we urgently need broader and deeper surveillance of national economic policies in the euro area. This should enable us to do an earlier detection and tackling of imbalances in order to better safeguard the macrofinancial stability in the eurozone."
Greece as a eurozone player is only small fry, accounting for 2.5 percent of the EU's economic activity. But it stands as a test case for what the EU would do in the event that contagion would spread to other economically weakened members of the eurozone, like Portugal and Ireland, and particularly the big members Spain and Italy.
But the EU's path to clarity of action is a difficult one. The bloc's comprehensive Lisbon Treaty, which came into force last year, forbids direct financial bailouts of member states by Brussels. There is left open the possibility of bilateral help from one member to another, but Germany in particular is cool to this, figuring it will be asked to pay the most.
Chancellor Angela Merkel has little room to maneuver, as German voters are strongly opposed to spending billions to rescue Greece from the mess it has created for itself. A public opinion poll indicates that 67 percent of Germans oppose a bailout for Greece at the EU's expense, and 53 percent believe that if necessary, Greece should be expelled from the eurozone.
It is widely accepted now that Greece used bogus statistics to qualify for entry into the eurozone in 2001, and consistently hid its rising debt levels. It currently has a public deficit of nearly 13 percent and a total debt equal to 113 percent of gross domestic product (GDP) -- compared with EU norms of 3 percent and 60 percent, respectively.
Athens' popularity in the EU will hardly be enhanced by this week's press reports that with the help of Wall Street financial advisers, the Greek government had for a decade sought to circumvent EU debt limits. "The New York Times" reported on February 14 that in one such deal, a well-known New York financial house helped Greece obscure billions in debts from budget overseers in Brussels.
Fortunately, Greek Prime Minister George Papandreou does not have to contend with a hostile electorate at home -- at least not yet. Opinion polls show his personal popularity is undiminished by the crisis, which is largely blamed on the previous conservative government. And polls show that more than half of Greeks support the austerity measures as a practical necessity. But the powerful unions have already staged warning strikes as a reminder to the government not to go too far.
How long social peace will last when the belt-tightening begins to hurt is anyone's guess. Papandreou has said his country will bring the budget deficit down to the required level of 3 percent of GDP by 2012, but analysts consider this timescale too optimistic.
The revelations of Greece's problems have upset some of the EU members still trying to achieve the stiff standards of entry into the eurozone. One of these countries is Lithuania, which only just failed to qualify in 2007, and is now aiming for 2014. Prime Minister Andrius Kubilius said on February 12 that some countries are treated more leniently than others.
He said that for those still outside the eurozone, the Maastricht criteria for monetary union are applied very strictly, but "once you are in, you can do almost what you want."
A full meeting of the EU's 27 finance ministers was continuing in Brussels today.