Wednesday, 24 October 2012

Germany Demands Strict Oversight

Germany has demanded new guarantees from Greece in how it will implement its bailout obligations, according to a German finance ministry document dated October 20.

The proposed strictures, which include down payment of Greek monthly surpluses before eurozone assistance is disbursed, are a measure of how far Greek credibility has sunk in the eyes of some of the country's European partners.

The report was leaked to the Greek press by the socialist party, Pasok, which says it was sent to the Greek finance ministry by German Deputy Finance Minister Dr. Thomas Steffen. The German finance ministry has neither confirmed nor denied the contents of the paper.

According to Greek press versions of the leaked document, Greece would be called upon to meet the following preconditions: 

1. A designated account into which Greek bailout assistance is paid by the International Monetary Fund, the European Commission and the European Central Bank would come under the sole purview and control of the ECB.

2. On months when it met its tax revenue targets, Greece would advance the surplus to this account as its contribution to its own bailout (565mn euro are budgeted this year and 75mn next year). The implication is that Greece would not be able to transfer surpluses to cover deficits across the year, but would have to make adjustments on a monthly basis.

3. An external auditor, such as the European Commission, would have to approve any loan applications made by the Greek central government or even local governments. This means that Greece would not be able to refinance itself on the open market without the permission of its primary creditors.

4. A new team of inspectors would be deployed across the Greek government to oversee implementation of Greece's bailout obligations. This is the return of a German proposal brought forward in 2011, after it became apparent that Greece was off track, causing an outcry at the time. To his credit, Horst Reichenbach, the leader of the European Commission's Task Force, already deployed in Greek ministries to provide technical assistance in an ongoing administrative overhaul, refused to double up as an enforcer at the time.

The alleged proposals would be unlikely to pass muster in the European Commission and IMF, let alone Greek public opinion. But they are an indication of some of the most austere ideas floating around in northern European capitals about how to make the Greeks accountable for the billions they are borrowing. The trouble with them is that they would barely be enforceable in the private sector, let alone in a sovereign state. One therefore wonders why such documents are circulated to Greek political parties, where they can only do damage to the European cause if leaked.

The leaked ideas also underline a growing transformation in the European Union. The EU was founded as a consensual decision making body of equal and independent sovereigns. Mutual respect is vital for such a system to function. The eurozone debt crisis has undermined that value system. Greece's blatant abuse of EU trust over the years is laid bare. The country has taken handouts without implementing directives, leaving its economy uncompetitive. The bad faith is now being reciprocated with the effective demotion and humiliation of Greece, which compound its material punishment. It is precisely this combination of insult and injury, however, that is eroding the country's Europeanist political parties and sending voters to political extremes. 

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