Should Greece receive a bailout?

March 2010

The story

Greece became the first country in the eurozone to face a debt crisis, requiring support from within the EU or the International Monetary Fund. Greece had been using swap deals to mask a budget deficit higher than that allowed under the EU’s Stability and Growth Pact.

The reaction

“There should be no bailout: it is high time that countries and investors learn to live with their mistakes,” said City AM editor Allister Heath. He added that Brussels was guilty of turning a blind eye to the “repeated violations” of the rules by “corrupt and incompetent” governments and would only compound the problem by a bailout.

The Guardian highlighted the inevitability of a crisis given that monetary union was not accompanied by a political union with redistributive power. “The eurozone is currently experiencing… a theoretical design flaw becoming painful reality,” said Henning Mayer, who suggested the creation of a European Monetary Fund.

Jim Reid of Deutsche Bank described Greek debt as being in the “Twilight Zone” to Bloomberg. “We are left with a stand-off that probably has to be resolved before Greece next comes to the market.”

What next?

There is no officially recognised way of organising a bailout – it is even prohibited by European law (albeit with loophole). However, there is increasing speculation that individual nation states, led by Germany, will organise a £22bn bailout consisting of loans and guarantees. Greece has been given until 18 March to come up with an austerity plan that reduces the budget deficit. If a deal is not done before April, when a significant tranche of debt matures, Greece will default.