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January 30, 2012

Would Greece Cede authority over budget?

European integration and the losses of sovereign controls weighed

If the Greek government won't implement all of the steps agreed to in the various treaty arrangements to finance debt payments, why not just take away their ability to stop it? With sovereign budget control in the hands of euro zone-appointed commissioners, the saving of the Greek economy (or final annihilation of it) could be completed quickly in order to hit reduction targets. This simple idea (from Germany) has had the effect one might expect: outrage. Article at Financial Times.

"EU and International Monetary Fund officials have already presented the Greek government with a 10-page list of “prior actions” Athens must take before being granted the new bail-out. The list, obtained by the Financial Times, includes cutting 150,000 public sector jobs within three years and cutting this year’s budget deficit by a further 1 per cent of economic output.

...The German plan, which was circulated on Friday and would also force Greece to pay its debt obligations before spending any money on normal government expenditures, caught Mr Papademos and other eurozone governments by surprise. Officials said it was unlikely to be adopted.

“The Germans have a lot of influence but that goes a little beyond the limits the outer member states could support,” said a senior official involved in the discussions. “If you went with that model you’d do away with the normal democratic decision-making in a member state.”

The lead at the Wall Street Journal

Frustrated with the slow pace of implementation of budget reforms in Greece, Germany is leading a push to force Athens to cede some control over its budget decisions to Europe as a condition of disbursing the next tranche of international aid for the beleaguered country.

The question within all of the treaty negotiations for years now has always been would Greece sell off anything of real value in order to stay in the EU (for example Aegean Islands, or renting out historical monuments, or ceding financial control). So far the answer has always been "no*," and anytime the idea is fielded in Greece the usual contradiction is expressed: Greece wants to stay in the EU but not if it means losing any element of national identity. This yes/no answer continues to influence every move of the Greek legislature, which will approve (with often a great deal of agony) treaty agreements which mean tearing down a half-century of economic and political arrangements that benefit and protect the various ruling parties and their clients (principally unions). But when it comes to following through, very little happens.

More about the leaked Berlin proposal to adminster the Greek budget at eKathimerini (English).

(*One exception is the creation of the Elstat statistical agency, an independent body to provide reliable measurements of Greek economic activity.)

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