Greece, the Franco-Germans say, has not yet asked for assistance. The Washington Consensus of fiscal austerity is being recommended for Greece by its European Union (EU) neighbors similar to asking the Greeks to go hungry going forward, even as the EU knew that it was overeating all these years, violating the Economic and Monetary Union (EMU) rules.
Pan-European pride and cultural chauvinism act in self-contradictory ways within the EU: Brussels has no mechanism to come to the aid of faltering countries within the EU because the citizens of Germany and France are reluctant to come to the aid of the overextended EU economies but at the same time the EU is embarrassed to let Greece go to the International Monetary Fund (IMF), whose very raison d’etre it is to save countries such as Greece from sovereign default.
The EU is not ready to enlarge the eurozone until it can figure out how to deal with its current membership. This test has been a gathering storm for some time. So, larger claims about civilization and world peace will have to wait. The EU must first aspire to become India, politically, before it can aspire to become the world’s largest economy (let alone leading the world) or else it should be happy remaining a conglomeration of many countries with better mechanisms for resolving internal economic redistribution issues.
There cannot be a better early warning for preemptive intervention by the IMF in Greece, an institution mostly run by the G7 countries (the United States, EU, Japan and Canada), which has been working hard since Timothy Geithner was at the Fund to improve its primary mission of macroeconomic surveillance after the Asian, Russian and Latin American debacles in the ‘90s.
The EU must let Greece be rescued by the IMF through its Standby Arrangement (SBA) loan facility and in that process recommend that the EU, albeit one of its masters, given the lessons the EU is learning from Greece, work on designing EU-level arrangements before its membership requires last resort lending by the IMF. The EU’s behavior with Iceland, which is not a EU member, is understandable though it has been strategically stupid, but its schizophrenic behavior vis-à-vis Greece is not.
Still, the choice is up to the EU whether it expects to be treated as one or many. It cannot have it both ways. After all, Greece is a sovereign country, albeit Greece’s EU and EMU memberships and it must have the freedom to independently seek the assistance of multilateral institutions such as the IMF, by, ironically, tapping into the contributions of wealthier EU nations to the IMF.
If the EU countries cannot work it out amongst themselves in Brussels and Frankfurt, they should be able to do so in Washington. In the end, this could be a better structural mechanism to resolving internal issues within currency and economic unions such as the EU, especially because such unions are useful templates for better global economic integration.
The IMF must be less constrained in warning its largest members, including sovereign countries such as the United States and China, let alone the farcical economic arithmetic that is the EU, to ensure global economic and financial stability.